TN 207 (02-21)

PS 01825.011 Florida

 

A. PS 21-001 Validity of Purported Pooled Trust

Date: January 6, 2021

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether a pooled trust meets 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 opinion concludes that it does not meet the requirements because the trust sub-accounts are not established for the sole benefit of each beneficiary and the payback provision is improperly limited.

2. Opinion

QUESTION

Whether the Advocates & Guardians for the Elderly & Disabled Pooled Special Needs Trust (Trust) meets 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

For the reason discussed below, the Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

According to the information provided, the Social Security Administration (agency) found [Number Holder (NH)] disabled effective April 23, 2020, and entitled to Supplemental Security Income (SSI). On September 9, 2019, NH, by or through his legal guardian, Central Florida Senior Solutions, LLC, enrolled in and adopted the Trust Declaration via a Joinder Agreement (Joinder). See Joinder pmbl. Below are the relevant provisions of the Trust and the Joinder.

I. Purpose and Administration

In April 2004, Advocates & Guardians for the Elderly & Disabled, Inc. (AGED), established the Trust under a Declaration of Pooled Special Needs Trust. The Trust was amended and restated in March 2010 through a Master Trust Declaration as a pooled trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the sole benefit of Trust beneficiaries under the Trust. See Trust Decl., pmble.; Art. 1, § 1.1. The Joinder incorporates by reference the Declaration of Trust. See Joinder pmbl.

The Trust and Joinder designate AGED (Trustee) as the trustee for the Trust. See Trust Decl., Art. 1, § 1.7; Joinder, App’x A, Definitions No. 22. The Trust states Trustee is a non-profit corporation. See Trust Decl., Art. 1, § 1.7. Trustee also provided a September 27, 2006 letter from the Internal Revenue Service (IRS) stating that Trustee is an exempt organization under section 501(c)(3) of the Internal Revenue Code.[1]

The Trust defines “beneficiary” as “a person who is designated by a Grantor to be the sole beneficiary of services and benefits under a particular [Individual Benefit Account (IBA)] created under and within this Trust by said Grantor, and who is a disabled person, as defined in § 1614(a)(3) of the Social Security Act … and who is presented by a Grantor to the Trust as qualifying under 42 U.S.C. § 1396p.” Trust, Art. 2, § 2.1. The Trust defines a grantor as a parent, grandparent, legal guardian of the beneficiary, the beneficiary himself, an appropriate legal representative, or any person or entity acting pursuant to an order by a court, who contributes money and/or property to the Trust. Trust Decl., Art. 2, § 2.4.

The Trust includes separate sub-accounts for each beneficiary. Trust Decl., Art. 2, § 2.5. The Trust refers to these sub-accounts as IBAs, meaning financial accounts within the Trust maintained for the sole benefit of an individual beneficiary. Trust Decl., Art. 2, § 2.5. The Joinder is the individual written agreement between Trustee and a grantor by which the grantor establishes an IBA for the sole benefit of the beneficiary. See Trust Decl., Art. 2, § 2.6. The Trust specifies that language in the specific IBA controls over any provisions in the Trust. Trust Decl., Art. 2, § 2.6. The Trust provides that Trustee will provide an accounting to each beneficiary or the beneficiary’s legal representative at least annually showing all receipts, disbursements, and distributions to or from the beneficiary’s IBA during the previous accounting period. See Trust Decl., Art. 7, § 7.4. The fees and expenses associated with each IBA are set forth and charged as noted in the Trust Fee Agreement. Trust Decl., Art. 7, § 7.3. Per the Trust, additional compensation for extraordinary services rendered, which are not covered in the Fee Agreement, are either apportioned on a pro rata basis to all IBAs, or charged only against the IBA incurring the expenses. Trust Decl., Art. 7 § 7.3. Finally, the Trust provides costs and expenses of defending the Trust, or any IBA, may be apportioned on a pro rata basis to all IBAs or charged only against the IBA affected by the action defended against. Trust Decl., Art. 7, § 7.6.

II. Distribution

The Trust provides the Trustee with sole and absolute discretion to distribute income and/or principle, consistent with restrictions in Article 5 of the Trust and applicable law, for the sole benefit of a beneficiary of the Trust. Trust Decl., Art. 8, § 8.1. Article 5 explains the Trustee shall pay or apply for supplemental care or supplemental needs of the beneficiary. Trust Decl., Art. 5, § 5.1. The Trust prohibits distributions to or for the benefit of a beneficiary, if the distribution would disqualify the beneficiary from eligibility for government or other needs-based programs, unless Trustee determines it is in the beneficiary’s best interest to do so for a period of time. Trust Decl., Art. 5, § 5.2.

The Trustee has the discretion to transfer assets from the Trust only into a Trust authorized by 42 U.S.C. § 1396p(d)(4) (section 1917(d)(4) of the Act). Such transfer must be for the sole benefit of a beneficiary and the receiving Trust may not eliminate the beneficiary’s eligibility for need-based public benefits and cannot diminish the right that may exist in any government entity to recover assets from that IBA. See Trust Decl., Art. 5, § 5.1. The Trust provides the Trustee may use funds from an IBA to compensate various Trust or beneficiary agents and reimburse reasonable and necessary expenses incurred for services rendered to or on behalf of a Trust beneficiary. Trust Decl., Art. 8, § 8.13(l).

III. Irrevocability and Spendthrift

The Trust states that it is irrevocable. Trust Decl., Art. 1, § 1.4. The Trust and the Joinder Agreement may be amended from time to time by Trustee only. Trust Decl., Art. 1, § 1.5; Joinder § 13.

The creditors or any beneficiary may not reduce the Trust value, and the existence of the Trust should not terminate or make unavailable public and private assistance benefits of the beneficiaries. Trust Decl., Art. 3, § 3.1. The Trust further explains that grantors and Trustee do not owe any obligation of support to any of the beneficiaries, and none of the beneficiaries are entitled to the Trust corpus or income, except as Trustee elects to disburse the same in its sole, complete, absolute, and unfettered discretion. Trust Decl., Art. 3, § 3.1. No part of the Trust or IBA is subject to anticipation or assignment or subject to legal or equitable process, and no beneficiary may compel distribution from the IBA or any other part of the Trust estate. See Trust Decl., Art. 3, § 3.2.

IV. Termination

When a beneficiary dies, the Trust provides that the Joinder Agreement controls the specific process for paying out the beneficiary’s property in the Trust. Trust Decl., Art. 6, § 6.1. NH’s Joinder Agreement provides the Trust will retain 10% of the remaining IBA amounts as surplus Trust property. The Trustee will administer and distribute the balance of the remaining IBA amounts in its sole discretion, within certain guidelines. The guidelines include distribution for the direct or indirect benefit of other beneficiaries; to add disabled persons to the Trust as beneficiaries; to provide disabled persons with equipment, medication, education, or other services deemed suitable for such persons by the Trustee; and to provide disabled persons with professional guardianship services. Joinder § 12(a).

Any assets not retained as surplus Trust property are subject to government reimbursement claims and the trustee will distribute any remaining balance to the Final Remainder beneficiaries named in the Joinder Agreement. See Joinder § 12(a); Trust Decl., Art. 6 § 6.2(c) and (d). Specifically, assets not retained as surplus Trust property may pay administrative expenses to include taxes due from the trust to the state(s) or Federal government because of NH’s death and reasonable fees for administration of the trust estate. Joinder § 12(b). Administrative expenses do not include taxes due from NH’s estate, payment of debts owed to third parties, funeral expenses, and payments to residual beneficiaries. Joinder § 12(b). After payment of administrative expenses, Trustee shall distribute such remaining Trust property to each state in which NH received government assistance, based on each state’s proportionate share of the total government assistance paid by all states on NH’s behalf and up to the amount of that assistance. See Joinder § 12(b). The Joinder gives priority to repayment to the states over any other expenses to the degree enumerated in the statutes and government rules. The payback amount shall only be for medical assistance paid on behalf of NH “during the aforesaid Payback time period.” Joinder § 12(b). If the government reimbursement claims equal or exceed the IBA remainder amount, the IBA remainder amount becomes surplus Trust property retained by the Trust.

If the Trust does not retain any assets as surplus Trust property after administration of NH’s IBA as provided above, the Trustee will distribute the remaining assets to the final remainder beneficiaries listed in the Joinder Agreement. Joinder § 12(c).

V. Governing law

The laws of the United States and the State of Florida governs and interprets the Trust provisions. See Trust Decl., Art. 9, § 9.6. Any provisions of the Trust that are adjudged invalid or unenforceable under the laws of any place where the terms of the Trust are to be performed, or are sought to be enforced, shall be deemed inoperative without invalidating such provision elsewhere or any other provision of the Trust. Trust Decl. Art. 9, § 9.9. If any Trust provision disqualifies a Beneficiary for government assistance or causes the Trust to not qualify as a trust under 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act), such provision shall be considered void, ab initio, and the remainder of the Trust shall continue in full force and effect. Trust Decl., Art. 9, § 9.6.

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 (2020).[2] “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); 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.

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. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. Act § 1613(e)(5); see also POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

  1. i.  

    The trust is established and managed by a nonprofit association;

  2. ii.  

    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;

  3. iii.  

    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; and

  4. iv.  

    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); POMS SI 01120.203.D.1.

As written, the Trust and Joinder do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Specifically, the Trust does not establish IBAs solely for the benefit of each beneficiary and the payback provision includes an unspecified time limitation. See Act § 1917(d)(4)(C)(ii), (iv); POMS SI 01120.203.D.1, 5, 8.

To establish a trust for the sole benefit of the individual, the grantor must ensure the trust benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201F.1. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.D.5.

Although the Trust represents that the IBAs are for the sole benefit of each beneficiary, see Trust Decl., Art. 2, § 2.1, a close reading of the Trust reveals that one provision creates contingent interests that could benefit third parties during the individual’s lifetime. The Trust provides that extraordinary services may be apportioned on a pro rata basis to all IBAs or charged just against the affected IBA and costs and expenses of defending the Trust or any IBA may also be apportioned on a pro rata basis or charged just against the affected IBA. Trust Decl., Art. 7, §§ 7.3, 7.6; Art. 8, § 8.16. The relevant POMS section, however, provides that only cost for investment, legal, or other services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.4. The Trust does not indicate that if the extraordinary services involve only a specific IBA or if legal action is against only a specific IBA that the Trustee would charge the extraordinary services or costs and expenses only against that IBA. This Trust provision could allow Trustee to charge a pro rata share against an IBA that would not benefit the beneficiary of that IBA. Therefore, this Trust provision contemplates the potential use of assets in a beneficiary’s IBA for the benefit of others besides the beneficiary.

The Joinder states that the Trustee will use property in a deceased beneficiary’s IBA not retained by the Trust to pay administrative expenses and thereafter, the Trustee shall distribute such remaining Trust property to each state in which the beneficiary received government assistance. Joinder § 12(b). The Joinder further states that the Payback Amount shall only be for medical assistance paid on behalf of the Trust beneficiary during the Payback time period. Joinder § 12(b). However, the POMS explain that the payback provision within the trust cannot be limited to any particular time period. See POMS SI 01120.203.D.8. Because the Joinder appears to set a limit on the time period for calculating the amount to pay back to the states, the Joinder is not policy-compliant.

The Trust contains a clause for severing invalid or unenforceable provisions without invalidating the entire Trust. Trust, Art. 9, § 9.9. For SSI purposes, however, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in section 1917(d)(4)(C) of the Act without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Trust severability clause does not nullify or sever the Trust provisions discussed above that could benefit third parties or set an improper time limit on the payback provision. See POMS SI 01120.227.D.

The Trust complies with the remaining requirements in section 1917(d)(4)(C) of Act and the POMS provisions implementing those requirements. A pooled trust under section 1917(d)(4)(C) of the Act must contain the assets of a disabled individual. Act § 1917(d)(4)(C); POMS SI 01120.203.D.1. The Trust Declaration states that beneficiaries must be disabled individuals as defined by the Act, but it does not specify that the Trust or any Trust IBAs must contain assets of a disabled individual. See generally Trust Decl. In fact, a Grantor is any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a beneficiary. Trust Decl. Art. 2, § 2.4. However, NH, who the agency found disabled under the Act, provided the funds to establish his Trust IBA. Joinder § 8. NH’s legal guardian funded his IBA on September 9, 2019, with a deposit of $4,000. See Joinder §§ 2, 3, 6; Trustee Receipt and Acknowledgment of Trust Funding. The NH and his guardian funded the Trust with residuals from his income, which was an annuity from a structured settlement. See Joinder § 8. Therefore, NH’s Trust IBA contains the assets of a disabled individual.

The Trust states the Trustee is a non-profit corporation. Trust Decl., Art. 1, § 1.7. The IRS also lists Trustee as a tax-exempt organization on its website and the Florida Department of State lists Trustee as a non-profit corporation. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c; see also POMS SI 01120.20.3J (referring to the procedures in POMS SI 01130.689.E for determining if an organization is not for profit); POMS SI 01130.689.E (indicating the agency considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS). A 2006 letter from the IRS stating that Trustee is an exempt organization under section 501(c)(3) of the Internal Revenue Code. Thus, the Trust was established by and is managed by a nonprofit association as required by section 1917(d)(4)(C)(i) of the Act and the relevant POMS.

The trust consists of separate sub-accounts for each beneficiary that are pooled together for investment and management purposes, consistent with section 1917(d)(4)(C)(ii) of the Act and POMS SI 01120.203.D.1. Trust Decl., Art. 7, § 7.1. Trustee must maintain records for each Trust IBA and must provide each beneficiary with a report, at least annually of asserts in the Trust IBA in compliance with POMS SI 01120.203.D.4. See Trust Decl., Art. 7, § 7.4.

CONCLUSION

The Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and implementing POMS provisions. As written, the Trust IBAs are not established for the sole benefit of each beneficiary and the payback provision is improperly limited in the applicable time. The Trust and Joinder contain acceptable language to satisfy the other requirements under section 1917(d)(4)(C) and the implementing POMS provisions.

B. PS 20-082 Validity of a Purported Pooled Trust

Date: August 19, 2020

1. Syllabus

This Regional Chief Counsel opinion examines whether a pooled trust is a valid pooled trust under section 1917(d)(4)(C) of the Social Security Act and the implementing Program Operations Manual System provisions. The opinion concludes that the pooled trust does not comply with all the requirements. An early termination provision does not comport with the requirements for early termination provisions in the POMS, and other provisions of the trust could allow the trustee to disburse or use funds in a beneficiary’s sub-account that are not for the sole benefit of the beneficiary.

2. Opinion

QUESTION

Whether the Pooled Medicaid Trust of [names redacted] Jewish Family and Children’s Services of Palm Beach County, Inc. (the Trust) is a valid pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant Program Operations Manual System (POMS) provisions.

SHORT ANSWER

The Trust is not a valid pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

BACKGROUND

The [names redacted] Jewish Family and Children’s Services of Palm Beach County, Inc. (Trustee) created the Trust on January 3, 2003. See Decl. of Pooled Medicaid Trust of [names redacted] Jewish Family and Children’s Services of Palm Beach County, Inc. (Trust Decl.), pmbl.; Art. I; Art. II, ¶ 6; Art. III, ¶ 1. The information provided includes a September 24, 2007 letter from the Internal Revenue Service (IRS) stating that Trustee is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. The IRS’s website also lists Trustee as a tax-exempt organization.[3]

The Trust Declaration defines a “Beneficiary” of the Trust as a disabled person as defined in section 1614(a)(3) of the Act who qualifies under section 1917(d)(4)(C) of the Act to receive services and benefits under the Trust. Trust Decl., Art II, ¶ 1. If the agency or other governmental agency has not yet made a determination that an individual is disabled under the Act, the Trustee has the discretion to accept the individual as a beneficiary if the Trustee determines that the individual is disabled under the Act. Id. The Trust Declaration defines a “Grantor” as including a parent, grandparent, or guardian of a beneficiary; a beneficiary himself or herself; or any court. Trust Decl., Art II, ¶ 3. The Trust Declaration also defines a Grantor to include “any person or entity which contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary, by gift, will, contract, or agreement.” Id.

The intent of the Trustee was to establish a supplemental fund under section 1917(d)(4)(C) of the Act “for the benefit of Beneficiaries under this Trust, and not to displace assistance which may otherwise be available to those Beneficiaries.” Trust Decl. Art. III, ¶ 1. The Trustee has the discretion to pay or apply the principal or income, or both, of a Beneficiary’s Trust sub-account to satisfy that Beneficiary’s supplemental needs, if any. Trust Decl. Art. III, ¶ 2. The Trust Declaration prohibits the use of any part of the corpus of the Trust to be used to supplant or replace government assistance benefits of any governmental agency that has a legal responsibility to people with disabilities that are the same or similar to those of any Trust Beneficiary. Trust Decl. Art. III, ¶ 3.

The Trust Declaration states that for the purposes of determining a Beneficiary’s eligibility for government assistance, no part of the principal or undistributed income shall be considered available to the Beneficiary. Trust Decl., Art III, ¶ 3. The Trust Declaration also states that Beneficiaries:

shall not have any right to anticipate, sell, assign, mortgage, pledge, or otherwise dispose of or encumber all or any part of the Trust, nor shall any part of the Trust including income, be liable for debts or obligations of any [b]eneficiary, or be subject to attachment[,] garnishment, execution, creditor’s bill, or other legal or equitable process.

Trust Decl., Art III, ¶ 4.

Trustee established the Trust with an initial payment of $100.00. Trust Decl., Art V. The Trust estate consists of this initial payment and any additional contributions made by any Grantor. Id. The Trust becomes effective as to any Beneficiary upon execution of a Joinder Agreement by a Grantor, or by court order, and approval by Trustee. Once acceptable property is delivered to and accepted by Trustee, the Trust as to the Grantor of such property and the designation of the respective Beneficiary, becomes irrevocable and the property non-refundable, except when the Trustee determines the Trust sub-account becomes impossible to fulfill the purposes of the trust for a respective Beneficiary. Trust Decl., Art V, ¶ 1; see Trust Decl., Art XI, ¶ 3.

The Trust must maintain a separate Trust sub-account for each Beneficiary, but the Trust pools the Trust sub-accounts for purposes of investments and management of funds. Trust Decl., Art VI, ¶ 1. The Trustee or its authorized agents must maintain records for each Trust sub-account in the name of, and showing the property contributed for, each Beneficiary. Id. The Trustee must provide each Beneficiary with a report, at least annually, detailing the net income or prinicpal and other information related to the Beneficiary’s Trust sub-account as well as a financial statement at least annually. Trust Decl., Art VI, ¶ 2. The Trustee also must permit the Beneficiary to inspect his or her Trust sub-account records. Trust Decl., Art. VI, ¶ 3.

The Trust Declaration grants Trustee numerous powers to administer the Trust. Trust Decl., Art. IV, ¶ 4. The Trustee also has the sole discretion to “make any payment under the Trust (a) directly to a Beneficiary, (b) in any form allowed by law, (c) to any person deemed suitable by Trustee, or (d) by direct payment of a Beneficiary’s expenses.” Trust Decl., Art. VI, ¶ 5. “Costs and expenses of defending the Trust from any claim, demand, action, suit, or proceeding, may in the sole discretion of the directors of [Trustee], either (a) be apportioned on a pro rata basis to all Trust sub-accounts, or (b) be charged only against the Trust sub-account as to the affected Beneficiary.” Trust Decl., Art. VI, ¶ 7.

The Trust Declaration stated that it irrevocable, although it may be amended to effectuate the terms of the Declaration and to conform with any rules or regulations relating to section 1917(d)(4)(C) of the Act. Trust Decl., Art. X.

The Trust Declaration permits Trustee to terminate a Trust sub-account before the Beneficiary’s death if the Trust has reasonable cause to believe that the income or principal of the Beneficiary’s Trust sub-account is or will become liable for basic maintenance, support, or case for that Beneficiary. Trust Decl., Art. XI, ¶ 1. Under such circumstances, Trustee may: (a) terminate the Trust sub-account as if the Beneficiary has died, in accordance with Article XI, paragraph 2, of the Trust Declaration; (b) determine that the Trust has become impossible to implement for the affected beneficiary and treat the property in the Trust sub-account in accordance with Article XI, paragraph 3, of the Trust Declaration; or (c) continue to administer the Trust sub-account under separate agreement with the affected Beneficiary. Id. Paragraph 3 of Article XI allows Trustee to disburse all or any portion of the property in a Trust sub-account to a Grantor if it becomes impossible to fulfill the conditions of the Trust with regard to the respective Beneficiary other than the Beneficiary’s death. Trust Decl., Art. XI, ¶ 3.

If a Beneficiary dies, the disbursement of funds remaining in the Beneficiary’s Trust sub-account depends on which Joinder Agreement the Beneficiary used. Trust Decl., Art. XI, ¶ 2. Under Joinder Agreement A, the Trust sub-account funds of a deceased Beneficiary are deemed surplus Trust property and retained by the Trust, and, in the Trustee’s sole discretion, used for the benefit of other Beneficiaries, to add disabled persons to the Trust as Beneficiaries, or to provide disabled persons with equipment, medication, or services. Id. Under Joinder Agreement B, the Trust must disburse the Trust sub-account funds of a deceased Beneficiary to the State of Florida or other states all amounts remaining in the Trust sub-account up to the amount of medical assistance paid on behalf of the Medicaid applicant/recipient by the State of Florida or other states during the lifetime of the Medicaid applicant/recipient. Id. Any remaining funds must be distributed to the lineal descendants of the Beneficiary unless provided otherwise in the Beneficiary’s Joinder Agreement. Id.

[Name redacted], the number holder (NH), enrolled in and adopted the Trust Declaration on February 21, 2020, using Joinder Agreement B. NH is listed as the Grantor and Beneficiary in the Joinder Agreement, and she funded her Trust sub-account using funds she obtained in a civil settlement. Joinder Agt., ¶¶ B, C, F.

Under the Joinder Agreement, Trustee will determine upon NH’s death if the amount of money remaining in NH’s Trust sub-account is sufficient to reimburse the entire amount of Medicaid expenditures by the State of Florida and other states made on behalf of NH. Joinder Agt., ¶ G. If the reimbursement of the entire amount of Medicaid expenditures would exhaust all of the funds remaining in NH’s Trust sub-account, the Trust will retain all the assets of NH’s Trust sub-account for the benefit of other members of the Trust. Joinder Agt., ¶ G(i). If NH’s Trust sub-account has sufficient funds to reimburse the entire amount of Medicaid expenditures, Trustee will pay up to the amount of medical assistance paid on behalf of NH during her lifetime. Joinder Agt., ¶ G(ii). Trustee will then pay any outstanding guardianship and/or legal fees and distribute the remainder to contingent beneficiaries designated by NH. Id.

The Joinder Agreement states that NH’s Trust sub-account is established for her benefit. Joinder Agt., ¶ H. The Joinder Agreement also states that NH recognizes that all distributions are in Trustee’s sole discretion. Id. The Joinder Agreement declares that the Trust is a pooled trust in conformity with the provisions of section 1917(d)(4)(C) of the Act. Joinder Agt., ¶ J.4.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain eligibility requirements, such as income and resource restrictions. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2020).[4] “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); 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.

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. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

  1. i.  

    The trust is established and managed by a nonprofit association.

  2. ii.  

    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.

  3. iii.  

    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.

  4. iv.  

    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 subchapter.

Act § 1917(d)(4)(C); POMS SI 01120.203.D.1. The Trust and the Joinder Agreement completed by NH do not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.

The Trust is not a valid Trust under section 1917(d)(4)(C) of the Act because the Trust Declaration allows Trustee to terminate a Trust sub-account before the respective Beneficiary’s death and disburse the Trust sub-account’s assets in impermissible ways. Trust Decl., Art. XI, ¶ 1. A provision that allows a trust to terminate before the beneficiary’s death is an “early termination provision.” POMS SI 01120.199.D. A pooled trust with an early termination provision must require that any funds from an early termination either be paid to another “Section 1917(d)(4)(C) trust,” POMS SI 01120.199.F.2, or be paid first to the state(s) for medical assistance provided to the individual under the state(s) Medicaid Plan(s), with any remaining funds used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust Beneficiary, POMS SI 01120.199.F.1.

The Trust Declaration’s early termination clause permits Trustee to terminate a Trust sub-account before the Beneficiary’s death and disburse the funds in the Trust sub-account in three ways. Trust Decl., Art. XI, ¶ 1. None of the three options involve transferring the funds to another section 1917(d)(4)(C) trust. Id. Trustee may disburse the funds as if the Beneficiary has died, but the two options by which funds are disbursed if a Beneficiary dies do not require the reimbursement of the state(s) for medical assistance, nor do those options require that the remaining funds be used only for allowable administrative expenses, reasonable compensation to the trustee, or distributions to the trust Beneficiary. Trust Decl., Art. XI, ¶ 2. Trustee also can choose to disburse the Trust sub-account’s assets to a Grantor, which may not be the Beneficiary. Trust Decl., Art. XI, ¶ 3. Trustee also could “continue to administer the Trust sub-account under separate agreement with the affected Beneficiary,” Trust Decl., Art. XI, ¶ 1, but it does not specify that assets may be transferred only to another trust that meets the requirements of section 1917(d)(4)(C).

The Trust Declaration and Joinder Agreement also do not clearly establish that the Trust sub-accounts are established solely for each Beneficiary’s benefit as required by section 1917(d)(4)(C)(iii) of the Act and POMS SI 01120.203.D.5. The Trust Declaration states that a separate sub-account shall be established and maintained for each Beneficiary. Trust Decl., Art III, ¶ 2. The Joinder Agreement states that NH’s Trust sub-account is established for her benefit. Joinder Agt., ¶ H. However, the Trust Declaration gives the Trustee the sole discretion to make payments “to any person deemed suitable by Trustee.” Trust Decl., Art. VI, ¶ 5. The Trust Declaration does not specify who such a person may be or state that payments made to such a person would be solely for the Beneficiary’s benefit.

The Trust Declaration’s provision regarding legal expenses also is ambiguous and suggests that a Trust sub-account could be charged for defending suits against other Trust sub-accounts. The relevant Trust Declaration states that “[c]osts and expenses of defending the Trust from any claim, demand, action, suit, or proceeding, may in the sole discretion of the directors of [Trustee], either (a) be apportioned on a pro rata basis to all Trust sub-accounts, or (b) be charged only against the Trust sub-account as to the affected Beneficiary.” Trust Decl., Art. VI, ¶ 7. The POMS provides an exception to the sole-benefit rule for “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 Trust Declaration provision, however, does not indicate that if legal action is against only a specific Trust sub-account that the costs and expenses would be charged only against that sub-account. Therefore, this Trust Declaration provision could allow Trustee to charge a pro rata share of against a Trust sub-account that would not benefit the Beneficiary of that Trust sub-account.

The Trust Declaration contains a “Savings Clause” that suggests that any provision that would disqualify a Medicaid applicant/recipient is invalid or unenforceable. Trust Decl., Art. XIV. However, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. POMS SI 01120.227.D. To qualify for the pooled trust exception, the Trust must meet the criteria in 1917(d)(4)(C) without regard to its savings clause. POMS SI 01120.227.D.1. Thus, the Trust’s savings clause does not nullify or sever the Trust Declaration provisions discussed above.

The Trust and Joinder Agreement comply with the remaining requirements of section 1917(d)(4)(C) and the implementing POMS provisions. A pooled trust under section 1917(d)(4)(C) of the Act must contain the assets of a disabled individual. See Act § 1917(d)(4)(C); POMS SI 01120.203.D.1. The Trust Declaration states that Beneficiaries must be disabled individuals as defined in the Act, but it does not specify that the Trust or any Trust sub-account must contain assets of a disabled individual. See generally Trust Decl. In fact, a Grantor is any person or entity that contributes his, her, or its own assets or property to the Trust for the benefit of a Beneficiary. Trust Decl., Art II, ¶ 3. However, NH, who the agency has found to be disabled under the Act, provided the funds to establish her Trust sub-account. Joinder Agt., ¶¶ B, C, F. Therefore, NH’s Trust sub-account contains the assets of a disabled individual.

The Trust was established by and is managed by a nonprofit association, as required by section 1917(d)(4)(C)(i) of the Act and POMS SI 01120.203.D.3. Trustee is a non-profit association that established the Trust and manages it. See Trust Decl., pmbl.; Art. I; Art. II, ¶ 6; Art. III, ¶ 1; Art. IV; IRS Letter; IRS, Tax Exempt Organization Search.

The Trust consists of separate sub-accounts for each Beneficiary that are pooled together for investment and management purposes, consistent with section 1917(d)(4)(C)(ii) of the Act and POMS SI 01120.203.D.1. Trust Decl., Art VI, ¶ 1. Trustee must maintains records for each Trust sub-account and must provide each Beneficiary with a report, at least annually, of assets in the Trust sub-account in compliance with POMS SI 01120.203.D.4. Trust Decl., Art VI, ¶¶ 2, 3.

The provisions in the Trust Declaration and the Joinder Agreement regarding the disbursement of funds remaining in a Beneficiary’s Trust sub-account termination, and specifically NH’s Trust sub-account, upon the death of a Beneficiary comply with section 1917(d)(4)(C)(iv) of the Act and POMS SI 01120.203.D.8. If a Beneficiary has joined the Trust using Joinder Agreement A, the Trust sub-account funds of a deceased Beneficiary are deemed surplus Trust property and retained by the Trust, and, in the Trustee’s sole discretion, used for the benefit of other Beneficiaries, to add disabled persons to the Trust as Beneficiaries, or to provide disabled persons with equipment, medication, or services. Trust Decl., Art. XI, ¶ 2. If a Beneficiary has joined the Trust using Joinder Agreement B, as NH did, the Trust must disburse the Trust sub-account funds of a deceased Beneficiary to the State of Florida or other states all amounts remaining in the Trust sub-account up to the amount of medical assistance paid on behalf of the Medicaid applicant/recipient by the State of Florida or other states during the lifetime of the Medicaid applicant/recipient. Id.; Joinder Agt., ¶ G. Any remaining funds must be distributed to the lineal descendants of the Beneficiary unless provided otherwise in the Beneficiary’s Joinder Agreement. Id.; Joinder Agt., ¶ G(ii). These two options are consistent with and permitted by section 1917(d)(4)(C)(iv) of the Act and POMS SI 01120.203.D.8.

CONCLUSION

The Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. The Trust Declaration’s early termination provision does not comport with the requirements for early termination provisions in the POMS, and other provisions of the Trust Declaration could allow Trustee to disburse or use funds in a Beneficiary’s Trust sub-account that are not for the sole benefit of the Beneficiary.

C. PS 20-083 Resource Status of a Trust to Determine Eligibility for Supplemental Security Income—Florida Number holder S. S~

Date: August 31, 2020

[Replaces CPM 20-071 dated July 24, 2020]

1. Syllabus

In this updated opinion, the RCC examines a self-settled special needs trust to determine whether it meets the requirements for a pooled trust exception. Due to problematic Medicaid payback language in a sub-trust account contained within the trust, it does not meet the special needs trust exception in §1917(d)(4)(A) of the Social Security Act. The trust does, however, qualify as an irrevocable trust under Florida law. The NH has no legal authority to revoke or terminate the Trust or direct the use of the Trust principal. Nevertheless, because the Trustee can make payments to and for the benefit of NH, the portion of the Trust from which the Trustee can make payments and that is attributable to NH would be a resource for determining NH’s eligibility for SSI.

2. Opinion

 

QUESTION

 

Whether a trust established for S. S~, the number holder (NH) and a Supplemental Security Income (SSI) recipient, is a valid special needs trust for determining NH’s resources and eligibility for SSI.

 

OPINION

 

The trust is not a valid special needs trust for determining NH’s resources and eligibility for SSI. However, the trust is irrevocable under Florida law because NH has no legal authority to revoke or terminate the trust or direct the use of the trust principal. Nevertheless, because the Trustee can make payments to and for the benefit of NH, the portion of the Trust from which the Trustee can make payments and that is attributable to NH would be a resource for determining NH’s eligibility for SSI.

 

BACKGROUND

 

According to the information provided, NH is 47 years old (DOB: 1972). The Social Security Administration (agency) found her disabled effective March 3, 2017. NH is the settlor/grantor and beneficiary of the S. S.~ Self Settled Special Needs Trust (Trust), established on October 25, 2018. Trust, Art. I; Art. 16, § B; Grantor’s Execution and Creation. The Trust designates its purpose as the health, education, maintenance, and support of NH. Trust, Art. 4. NH is the sole beneficiary and her interests take priority over the interests of any remainder beneficiaries. See Trust, Art. 8, § A, No. 4.

 

NH initially funded the Trust with litigation settlement monies and such funds must be titled solely in the name of the Trust. See Trust, Art. 3, Nos. 1, 2. A third party may transfer other property to the Trustee with the consent of the Trustee as a gift to the Trust. See Trust, Art. 3, No. 3. The third party may not reclaim the gifted property. Seeid. However, the underlying Trust funding settlement terms contain a “Claw Back” provision as an “integral part” of the settlement, which could result in a transfer of Trust assets. Seeid.

 

The Trust is composed of three separate subtrusts for dividing assets. Trust, Art. 2, No. 1. These subtrusts are: the Settlement Protection subtrust, the Special Needs subtrust, and the Medicare Set-Aside subtrust, which is administered as part of the Special Needs subtrust. Seeid.; Trust, Art. 17, Nos. 17, 25. The Settlement Protection subtrust is a vehicle to hold funds, manage investments, and enrich the life of NH. See Trust, Art. 4, No. 1. The Special Needs subtrust permits the use of Trust assets to supplement, and not to supplant, any benefits or assistance of any Federal or state governmental entity that NH may receive. Seeid.; Trust, Art. 17, No. 25. The Medicare Set-Aside subtrust segregates a share of the Trust principal and income as a Medicare Set-Aside Arrangement in accordance with the provisions of the Social Security Act. Trust, Art. 17, No. 17. However, neither such segregation of Trust principal into the Medicare Set-Aside subtrust, nor payment of medical expenses from the Medicare Set-Aside subtrust, limits the Trustee’s powers or impairs the absolute discretion provided to the Trustee regarding distributions or allotments from the Trust. Seeid.

 

The Trustee has broad authority and discretion regarding allocations of Trust assets and distributions from the Trust. See Trust, Art. 10, § B. For instance, the Trustee has the power to initially allocate the Trust assets to the Settlement Protection subtrust and the Trustee has discretion, at any time after the Settlement Protection subtrust is initially funded, to transfer assets from the Settlement Protection subtrust to the Special Needs subtrust. See Trust, Art. 2, No. 2; Art. 3, No. 4. Art. 10, No. 2. However, “[t]he decision to distribute funds [from the Settlement Protection subtrust to the Special Needs subtrust] rests solely at the discretion of [the] Trustee.” Trust, Art. 5, No. 3. The Trustee “shall have the discretion to fund either the Settlement Protection Subtrust, or any Subtrust, or to transfer funds from and among the Subtrusts.” Trust, Art. 3, No. 3. Additionally, the Trustee with “sole and absolute discretion, has the power to postpone or suspend any principal distribution, for any definite or indefinite period.” Trust, Art. 10, § B, No. 16.

 

NH has no right or ability to compel disbursements. See Trust, Art. 8, § A, No. 1; Art. 7; Art. 8, § D, No. 6; Art. 18, No 57. The Trust agreement specifies that NH has no control over the Trust pursuant to Program Operations Manual System (POMS) SI 01120.200.B.10. See Trust, Art. 8, § A, No. 2. The Trust agreement also specifies that NH may not revoke or terminate the Trust. See Trust, Art. 8, § A, No. 2, § D, No. 6. Further, the Trust agreement indicates that the Trust is irrevocable, noting that subject to the limited exception to preserve compliance with the requirements of 42 U.S.C. § 1396p and applicable POMS:

 

[N]o person shall have any right or power, whether alone or in conjunction with others, in whatever capacity (i) to alter, amend, revoke, or terminate this Trust, or any of the terms of this Agreement, in whole or in part; (ii) to designate the persons who shall possess or enjoy the Trust Assets, and the income therefrom during his lifetime; or (iii) to exercise any of the incidents of ownership in any property transferred to the Trust.

 

Trust, Art. 18, No. 56. However, the Trust Protector may terminate the Trust if he determines it no longer serves a good and valuable purpose and direct that the Trust assets be fully paid out to the Beneficiary or Guardian. See Trust, Art. 12, No. 10. Before doing so, the Trust Protector must first satisfy any and all repayment liabilities which may exist to “the State Medicaid agency.” Id.

 

Additionally, NH has no right or ability to assign, pledge, encumber, anticipate, sale, or transfer in any manner any interest in the Trust or any Trust asset. See Trust, Art. 18, No. 57. Likewise, NH has no interest in the Trust that, while in the possession of the Trustee, can be liable for or subject to her debts, contracts, obligations, liabilities, or torts. Seeid. The Trust agreement further specifies that neither NH nor her spouse may serve as a Trustee or Successor Trustee. See Trust, Art. 10, § A, No. 1.

 

Upon NH’s death, the state Medicaid agency will receive reimbursement from all monies and assets remaining in the Special Needs subtrust up to an amount equal to the total medical assistance paid on behalf of NH under the state plan. See Trust, Art. 9, § B, No. 5. There is no provision addressing state Medicaid agency reimbursement from assets held in the Settlement Protection subtrust. See Trust, Art. 5. The Special Needs subtrust repayment will be made to all appropriate state Medicaid agencies from which NH received benefits during her life. Seeid. If NH received medical assistance from more than one state, the trust will repay each state that provided medical assistance. See Trust, Art. 9, § B, No. 6. Further, if NH received payment from other assistance programs, the claim of the state Medicaid agency furnishing medical assistance will be repaid before any other assistance programs are repaid. See Trust, Art. 9, § B, No. 7. The Trust document notes that in the event NH received benefits from more than one state’s Medicaid agency, and “[i]f the Special Needs Subtrust has insufficient assets to repay all medical assistance benefits received, then each State shall be paid its proportionate share of the remaining Trust Assets.” Trust, Art. 9, § B, No. 6. However, the Trust contains no provision regarding repayment of such a shortfall to a single state’s Medicaid agency, and reimbursement in that case is limited to funds from the Special Needs subtrust, with no contribution from the Settlement Protection subtrust or from the overall Trust as a whole. See Trust, Art. 9, § B, No. 5. “Trust Assets” are “all real or personal assets transferred to the trustee(s) under this Trust agreement as the body or object of the trust.” Trust, Art. 17, No. 30.

 

The Trust agreement specifies that it is to be construed, regulated, and governed in accordance with the laws of the state of Florida. See Trust, Art. 16, § 1; Art. 18, No. 46; Acceptance and Execution by Trustee. In a telephone interview, Glen Armand, the president of Eastern Point Trust Company (Eastern Point), the Trustee, explained that he signed the Trust document on behalf of a “Committee of Trustees.” The Committee of Trustees is composed of attorneys and trust companies from each of the states where Eastern Point does business, and that they associate with a number of attorneys and trust companies from Florida. Mr. Armand stated Eastern Point manages a number of the trusts located in Florida with associated trustees located in Florida. He also stated Eastern Point has been doing business in Florida since 2012.

 

 

DISCUSSION

 

A. Special Needs Trust Analysis

 

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 (2020).[5] “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. 20 C.F.R. § 416.1201(a); accord 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); accord POMS SI 01110.100.B.1, .B.3; POMS SI 01110.115.A; POMS SI 01120.010.B.

 

Pursuant to section 1613(e) of the Act, the agency generally must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. 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. Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Special needs trusts are one such exception. See Act § 1917(d)(4)(A); POMS SI 01120.203.A. To qualify as a special needs trust, trusts established after December 13, 2016, must: (1) contain the assets of an individual under age sixty-five who is disabled as defined by the Act; (2) be established for the benefit of the individual by the individual, a parent, grandparent, legal guardian, or court; and (3) provide that “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 [Title XVIII of the Act].” Act § 1917(d)(4)(A); see POMS SI 01120.203.C.1.

 

The Trust, established on October 25, 2018, satisfies the first requirement of a special needs trust because NH is under age sixty-five and the agency has found her disabled. The Trust also meets the second requirement because NH is the settlor/grantor of the Trust and she created the Trust solely for her benefit. See Trust, Art. I; Art. 16, § B; Grantor’s Execution and Creation; Art. 4; Art. 8, § A, No. 4.

 

However, the Trust does not meet the third requirement because it does not sufficiently provide that when NH dies, the Trustee will use any remaining Trust assets to repay any state that provided medical assistance or benefits to NH during her lifetime. See Act § 1917(d)(4)(A); POMS SI 01120.203.C.1. On its face, the Trust contains language stating the intent to “meet[] the requirements of a first party Special Needs Trust located at 42 U.S.C. § 1382b(e)(5) and implementing Social Security Administration policies set.” Trust, p. 9, 42 U.S.C. § 1396p(d)(4)(A) Review for Special Needs Trusts Only. Indeed, this provision asserts, “[t]he Trust provides specific language to reimburse all State Medicaid agencies up to an amount equal to the total medical assistance paid on behalf of the Beneficiary under any State’s Medicaid plan as set forth in this Trust document.” Trust, p. 9, 42 U.S.C. § 1396p(d)(4)(A) Review for Special Needs Trusts Only, No. 5. However, only two of the subtrusts – the Special Needs subtrust and the Medicare Set-Aside subtrust – actually contain and are subject to a specific provision regarding state Medicaid agency reimbursement. See Trust, Art. 9, § B, No. 5. The remaining subtrust – the Settlement Protection subtrust – contains no such s tate Medicaid agency reimbursement provision and the potential exists that assets held in that subtrust at NH’s death would be sheltered from reimbursement.

 

Only the Special Needs subtrust contains a State Medicaid agency reimbursement clause, stating expressly that any such reimbursement will come from “all monies and assets remaining in the Special Needs subtrust .” Id. (emphasis added). The Trustee administers the Medicare Set-Aside subtrust as part of the Special Needs subtrust, and thus, it presumably falls under this reimbursement provision. See Trust, Art. 2, No. 1; Art. 17, Nos. 17, 25. Indeed, the Medicare Set-Aside subtrust segregates a share of the Trust principal and income to be administered as a Medicare Set-Aside Arrangement in accordance with the provisions of the Act. See Trust, Art. 17, No. 17.[6]

 

In contrast, the Settlement Protection subtrust contains no corresponding Medicaid reimbursement provision. See Trust, Art. 4, No. 1; Art. 5. By specifying that the state Medicaid agency reimbursement provision applies only to assets in the Special Needs subtrust, without any provision addressing assets in the Settlement Protection subtrust, assets contained in the Settlement Protection subtrust on NH’s death could be sheltered from any Medicaid repayment requirement. Because this possibility exists, the Trust does not provide that “the State will receive all amounts remaining in the trust upon the death of [NH]” equal to the total medical assistance NH received under any state Medicaid plan. Act § 1917(d)(4)(A) (emphasis added); see POMS SI 01120.203.C.1.[7]

 

Coupling this exclusion of Settlement Protection subtrust assets from state Medicaid agency reimbursement with the unfettered discretion of the Trustee regarding Trust Asset allocation among the three subtrusts, any interpretation that the Trust meets the requirements of a valid special needs trust is further undermined. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A; Trust, Art. 10, § B. Although the Trustee has discretion, at any time after the Settlement Protection subtrust is initially funded, to transfer assets from the Settlement Protection subtrust to the Special Needs subtrust, there is no requirement that the Trustee do so. See Trust, Art. 10, No. 2. “The decision to distribute funds [from the Settlement Protection subtrust to the Special Needs subtrust] rests solely at the discretion of [the] Trustee.” Trust, Art. 5, No. 3. The Trustee “shall have the discretion to fund either the Settlement Protection Subtrust, or any Subtrust, or to transfer funds from and among the Subtrusts.” Trust, Art. 3, No. 3. Moreover, the Trustee has “sole and absolute discretion , . . . to postpone or suspend any principal distribution, for any definite or indefinite period.” Trust, Art. 10, § B, No. 16 (emphasis added). Thus, the Trustee could segregate assets in the sheltered Settlement Protection subtrust simply by exercising the discretion to refrain from allocation. Alternatively, the Trustee could transfer assets from the Special Needs subtrust to the Settlement Protection subtrust at any time per his or her unfettered discretion. The Trustee could thereby protect such assets from the state Medicaid agency reimbursement provisions of the Special Needs subtrust.[8] Thus, because the express language of the Trust agreement creates a possibility that Trust assets could be protected from state Medicaid reimbursement, the Trust does not meet the state Medicaid reimbursement requirement of a valid special needs trust under the Act. See Act § 1917(d)(4)(A); POMS SI 01120.203.C.1

 

Additionally, the Trust agreement’s reference to the initial funding settlement agreement’s Claw Back provision, an “integral part” of that settlement, raises further concerns that funds previously transferred to the Trust could be subject to transfer out of the Trust, thus exempting such funds from a state Medicaid agency reimbursement provision. See Trust, Art. 3, No. 3. Although reference to this Claw Back provision is vague, with little explanation of how it would work in practice, it nevertheless raises the potential that the Trustee could transfer Trust assets on or before the death of NH and thus remove those funds from consideration for Medicaid reimbursement purposes.

 

Finally, the Trust agreement’s early termination clause invalidates it as a special needs trust because it does not refer to all the state agencies that might have provided medical assistance. See Trust, Art. 12, No. 10. Specifically, the clause does not meet the POMS requirements by explicitly providing that “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).” POMS SI 01120.199F.1.

 

Accordingly, the trust does not satisfy the third requirement for a valid special needs trust of providing that when NH dies, the Trustee will use any remaining trust assets to repay any state that provided medical assistance or benefits to NH during her lifetime. Thus, the Trust is not a valid special needs trust in accordance with section 1917(d)(4)(A) of the Act and the POMS. See Act § 1917(d)(4)(A); POMS SI 01120.203.C.1.

 

B. Revocability of the Trust

 

1. Federal Law

 

Although the Trust is not a valid special needs trust exempt from counting as a resource under section 1613(e), the agency also applies its regular resource counting rules to determine if the trust is a resource that may affect an individual’s eligibility for SSI.[9] See POMS SI 01120.203.C.1; accord POMS SI 01120.200.A. A trust is a countable resource if the individual 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. Similarly, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. Seeid. 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.[10]

 

“If the individual at issue . . . is the grantor of the trust, the trust is usually a resource to that individual if he or she can revoke the trust and reclaim the trust assets.” POMS SI 01120.200.B.11.[11] “Some states follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary.” POMS SI 01120.200.D.3; see also POMS SI ATL01120.201.B (“Laws for each state in the Atlanta Region follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust document to the contrary.”). “However, many . . . States recognize that the grantor cannot unilaterally revoke the trust if there is a named ‘ residual beneficiary ’ in the trust document who would, for example, receive the principal upon the grantor’s death or the occurrence of some other specific event.” POMS SI 01120.200.D.3; see also POMS SI ATL01120.201.B (stating that “ if there is a residual beneficiary properly designated in the trust document, then the trust is irrevocable by its terms and is not a resource for SSI purposes”). “A residual beneficiary . . . is not a current beneficiary of a trust, but he or she will receive the residual benefit of the trust contingent upon the occurrence of a specific event, such as the death of the primary beneficiary.” POMS SI 01120.200.B.10; accord POMS SI 01120.200.D.3. To determine whether the Trust is revocable, the agency must look at the terms of the Trust and applicable state law. See POMS SI 01120.200.D.2 (“The revocability of a trust . . . depend[s] on the terms of the trust agreement and on State law.”).

 

The Settlor created the Trust under Florida law, and Florida law governs the Trust agreement, according to the Trust terms. Further, Glen Armand confirmed that he signed the trust on behalf of a Committee of Trustees, composed of attorneys and trust companies, some of whom reside and operate in Florida; that Eastern Point manages a number of the trusts located in Florida with associated trustees located in Florida; and that Eastern Point has been doing business in Florida since 2012. Therefore, we look to Florida law to determine whether the Trust is revocable. See POMS SI 01120.200.D.2; see also Fla. Stat. Ann. § 736.0107 (West 2020)[12] (stating “[t]he meaning and effect of the terms of a trust are determined by . . . [t]he law of the jurisdiction designated in the terms of the trust, provided there is a sufficient nexus to the designated jurisdiction at the time of the creation of the trust or during the trust administration, including, but not limited to, the location of real property held by the trust or the residence or location of an office of the settlor, trustee, or any beneficiary”).

 

2. State Law

 

In Florida, a trust is created only if: (a) the settlor has capacity to create a trust; (b) the settlor indicates an intent to create the trust; (c) the trust has a definite beneficiary or is a charitable trust, a trust for the care of an animal, or a trust for a noncharitable purpose; (d) the trustee has duties to perform; and (e) the same person is not the sole trustee and sole beneficiary. Fla. Stat. Ann. § 736.0402(1). “A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities.” Fla. Stat. Ann. § 736.0402(2). “Once created, a valid trust cannot be altered, amended, or revoked except by the exercise of a power identified in the trust.” L’Argent v. Barnett Bank, 730 So. 2d 395, 396 (Fla. Dist. Ct. App. 1999), cited inLittell v. Law Firm of Trinkle, Moody, Swanson, Byrd & Colton, 345 F. App’x 415, 419 (11th Cir. 2009).

 

“The polestar of trust . . . interpretation is the settlor’s intent.” Bryan v. Dethlefs, 959 So. 2d 314, 317 (Fla. Dist. Ct. App. 2007); see Fla. Stat. Ann. § 736.1101(1). “In determining the settlors’ intent, the court should not resort to isolated words and phrases; instead, the court should construe the instrument as a whole, taking into account the general dispositional scheme.” Roberts v. Sarros, 920 So. 2d 193, 195 (Fla. Dist. Ct. App. 2006) (internal quotation marks omitted); seeLittell, 345 F. App’x at 419; Bryan, 959 So. 2d at 317; L’Argent, 730 So. 2d at 397. When the terms of a trust are clear and unambiguous, “the settlors’ intent as expressed in the trust controls and the court cannot resort to extrinsic evidence.” Littell, 345 F. App’x at 419; seeBryan, 959 So. 2d at 317 n.2; L’Argent, 730 So. 2d at 397.

 

Under Florida law, “[u]nless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust.” Fla. Stat. Ann. § 736.0602(1). “‘Revocable,’ as applied to a trust, means revocable by the settlor without the consent of the trustee or a person holding an adverse interest.” Fla. Stat. Ann. § 736.0103(17). Furthermore, a revocable trust:

 

“is created when a person, called the settlor, subjects property owned by him to a trust for the benefit of at least one other person, reserving to himself as settlor-beneficiary the income from the trust property for life and the power to revoke the trust in whole or in part at any time. The other person or persons’ enjoyment of the trust is postponed until the settlor’s death.” By definition, then, when a settlor sets up a revocable trust, he or she has the right to recall or end the trust at any time, and thereby regain absolute ownership of the trust property. This retention of control over property distinguishes a revocable trust from the other types of conveyances . . . , i.e., gifts, deeds, wills, contracts, etc.

 

Fla. Nat’l Bank of Palm Beach Cnty. v. Genova, 460 So. 2d 895, 897 (Fla. 1985) (quoting E. Carr, Revocable Trusts, 5-6 (1980)); see also Donna Litman, Revocable Trusts Under the Florida Trust Code, 34 Nova L. Rev. 1, 5 (2009) (“A revocable trust requires a transfer of ownership or declaration of trust during lifetime as would an irrevocable trust; however, it differs from an irrevocable trust because the settlor can amend or revoke the trust and recall the transfer or the declaration during lifetime.”).

 

As noted above, in this case the terms of the Trust explicitly state, “[t]he Trust is irrevocable and by its express terms does not provide the Beneficiary the right to revoke or terminate the Trust.” Trust, Preamble (emphasis added); see Trust, Art. 8, § A, No. 2, § D, No. 6. The Trust agreement further notes that subject to a limited exception to preserve compliance with the requirements of the Act, no one has any right or power to alter, amend, revoke, or terminate the Trust. Trust, Art. 18, No. 56. Additionally, under the terms of the Trust, NH has no control over the Trust pursuant to POMS SI 01120.200.B.10. Trust, Art. 8, § A, No. 2. Further, NH may not assign, pledge, anticipate, encumber, sale, or transfer her interest in the Trust or any Trust assets. See Trust, Art. 18, No. 57. Likewise, NH has no interest in the Trust that can be liable for or subject to her debts, contracts, obligations, liabilities, or torts. Seeid. The Trustee has sole discretion regarding disbursement and NH has no right or ability to compel disbursements. See Trust, Art. 8, § A, No. 1; Art. 7; Art. 8, § D, No. 6; Art. 18, No 57. Additionally, NH and her spouse are prohibited from serving as a Trustee or Successor Trustee of the Trust. See Trust, Art. 10, § A, No. 1. Thus, the Trust contains sufficient indication that it was intended to be irrevocable.

 

Moreover, a trust is irrevocable if it sufficiently identifies a residual beneficiary. See POMS SI ATL01120.201.B. “A residual beneficiary, while not a current beneficiary of a trust, is named to receive the benefit of the trust after a specific event occurs, e.g., the death of the primary beneficiary.” POMS SI ATL01120.201.C. State laws generally differ regarding the language needed to designate a residual beneficiary. See POMS SI ATL01120.201.C.1. In Florida, a trust may designate a residual beneficiary with general, non-specific terms such as “to my estate.” SeeCutler v. Cutler, 994 So. 2d 341, 342-43 (Fla. Dist. Ct. App. 2008) (holding trust provision leaving real property assets to beneficiary’s estate upon her death was effective to create a residuary beneficiary in the estate and subjected real property to payment of estate’s debts); POMS SI ATL 01120.201.C.6 (stating Florida recognizes generalized wording as sufficient to name a residual beneficiary). The Trust here named a valid residual beneficiary because it provides that upon NH’s death, the Trustee shall distribute the remaining Trust assets to such persons as NH names in her will, or if NH fails to provide for such distribution in her will, then the Trustee shall distribute the remaining assets to NH’s estate. See Trust, Art. 9, § C, No. 6. Because NH's Trust sufficiently identifies a residual beneficiary, the Trust is not revocable by NH. See POMS SI ATL01120.201.B.

 

We believe the provisions listed above establish that NH’s Trust is irrevocable under Florida law. Nothing in the Trust appears to grant NH the ability to control her Trust account, revoke her Trust account, or sell her assets in or income from her Trust account. See Fla. Stat. Ann. § 736.0103(15); L’Argent, 730 So. 2d at 397; Genova, 460 So. 2d at 897. Thus, reading the Trust agreement as a whole, we believe NH intended her Trust account to be irrevocable and a Florida court would give effect to NH’s intent based on the express language in the Trust agreement. SeeLittell, 345 F. App’x at 419; Bryan, 959 So. 2d at 317; Roberts, 920 So. 2d at 195; L’Argent, 730 So. 2d at 397.

 

Although the Trust is irrevocable under Florida law, POMS SI 01120.201D.2.a states:

 

In determining whether an irrevocable trust established with the assets of an individual is a resource, we must consider how the trust can make payments. If the trustee can make any payments to or for the benefit of the individual or individual’s spouse, the portion of the trust from which the trustee can make payments and that is attributable to the individual is a resource.

 

Here, the Trust agreement establishes that the Trustee can make payments to or for the benefit of NH. See Trust, Art. 4; Art. 5, No. 2. Therefore, the portion of the Trust from which the Trustee can make payments and that is attributable to NH would be a resource for determining NH’s eligibility for SSI. See POMS SI 01120.201D.2.

 

CONCLUSION

 

The Trust is not a valid special needs trust under the Act. However, the Trust is irrevocable under Florida law because NH has no legal authority to revoke or terminate the Trust or direct the use of the Trust principal. Nevertheless, because the Trustee can make payments to and for the benefit of NH, the portion of the Trust from which the Trustee can make payments and that is attributable to NH would be a resource for determining NH’s eligibility for SSI.

 

D. Survey of State Laws on Dry or Empty Trusts – Region IV

Note: This survey updates and replaces "PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region," which has been removed from POMS.

Date: July 10, 2018 (published June 2020)

1. Syllabus

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.

2. Opinion

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).[13] 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.[14]

Georgia:

Georgia statutes, which recognize two types of trusts, express and implied,[15] 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]

E. PS 20-025 Validity of Charities Pooled Trust as a Pooled Trust - Region IV Survey

Date: February 27, 2020

1. Syllabus

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.

2. Opinion

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.[16] 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.[17]

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.

F. PS 19-101 Validity of Purported Pooled Trust Established by American Charitable Trust of Florida, Inc.

Date: August 13, 2019

1. Syllabus

This Regional Chief Counsel (RCC) opinion evaluates whether the American Pooled 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 it complies with these requirements.

2. Opinion

QUESTION

You asked whether the American Pooled Trust (the 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 Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS.

BACKGROUND

The Trust Declaration, included in the materials provided, states that the Trust was established on December 28, 2017, by American Charitable Trust of Florida, Inc., a non-profit corporation organized under the laws of the State of Florida, as settlor and trustee. See Trust Decl., pmbl.; Art. I, §§ 1.1; Art. II, §§ 2.1, 2.2. The Trust states it was established as a pooled trust under 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act) for the benefit of its beneficiaries. See Trust Decl., Art. I, § 1.1; Art. VIII, § 8.1. The Trust includes “sub-account” trusts that are established for the sole benefit of a beneficiary, who is entitled to an annual report and has the right to inspect trust document. See Trust Decl., Art. II, § 2.8; Art. VIII, §§ 8.1, 8.2, 8.3; Joinder Agreement, Art. 2, § 2.01; Art. 6, 6.02. American Charitable Trust of Florida, Inc., as the trustee, is empowered to pool all sub-account assets for management and investment purposes. See Trust Decl., Art. VIII, § 8.1; see also Joinder Agreement, Art. 2, § 2.01. The Trust Declaration specifically states that the trustee, American Charitable Trust, has managerial control over the Trust. See Trust Decl., Art. I, § 1.06; Art. II, § 2.1. The trustee maintains records for each trust sub-account in the name of the beneficiary, showing the contributed property and all distributions from the account. See Trust Decl., Art. VIII, § 8.1.

A trust sub-account may be created by means of a joinder agreement for a beneficiary, defined as a disabled person under 42 U.S.C. § 1382c(a)(3) (section 1614(a)(3) of the Act). See Trust Decl., Art. II, §§ 2.4, 2.5, 2.7, 2.8; Art. IV, § 4.2. Sub-accounts may be established with funds from a beneficiary by an individual, his parent, grandparent, or legal guardian, or any person or entity acting pursuant to an order by a court of competent jurisdiction. See Trust Decl., Art. II, § 2.4; Art. IV, § 4.1. The Trust Declaration specifies that the grantor “shall only fund the trust with[] the assets and/or income of the Beneficiary.” Trust Decl., Art. IV, § 4.1; see also Art. IV, § 4.3; Art. IX, § 9.5 (all beneficiaries must be disabled). Additionally, the grantor acknowledges that the “sub-account is funded with only the assets and/or income of the Beneficiary . . . .” See Joinder Agreement, Art. 2.

The Trust Declaration includes a spendthrift provision, which states that beneficiaries of the Trust may not control distributions from an established sub-account or revoke it. See Trust Decl., Art. III, § 3.1; see also Joinder Agreement, Art. 6, § 6.02 (stating no funds should be made directly to the beneficiary). Instead, the trustee has sole discretion to distribute funds for a beneficiary’s needs and care. See Trust Decl., Art. III, § 3.1; Art. V, § 5.1. The intent of the Trust Declaration is that neither the Trust, nor the assets held in any trust sub-account, shall cause public and private assistance benefits of any beneficiary to be affected. See Trust Decl., Art. III, § 3.1; Art. V, § 5.2.

On the death of a beneficiary, any amounts that remain in that beneficiary’s sub-account are deemed surplus trust property and are retained by the Trust, pursuant to 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act). See Trust Decl., Art. VI, § 6.1; Joinder Agreement, Art. 3, § 3.01. Pursuant to 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act), the Trust Declaration states that to the extent that amounts remaining in the beneficiary’s sub-account upon the death of the beneficiary are not retained by the Trust, the Trust will pay 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. See Trust Decl., Art. VI, § 6.2; Joinder Agreement, Art. 3, § 3.03.2. To the extent that the Trust does not retain the funds in the account, the states are the first payees and have priority over payment of other debts and administrative expenses. See Trust Decl., Art. VI, § 6.2. The Trust will also provide payback for any state that may have provided medical assistance under the state Medicaid plan, and not be limited to any particular states nor any particular period of time. See Trust Decl., Art. VI, § 6.2. The Trust may not be terminated during the lifetime of the beneficiary, and no refunds may be made to a grantor or beneficiary. See Trust Decl., Art. VII, §§ 7.1, 7.2.

The information provided also includes a December 27, 2017, letter from the Internal Revenue Service (IRS) stating that American Charitable Trust of Florida, Inc., is an exempt organization under section 501(c)(3) of the Internal Revenue Code.[18]

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 (2019).[19] “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 01120.010B.

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 01120.201A.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 01120.201A.1; POMS SI 01120.203A. Pooled trusts are one such exception. See Act § 1917(d)(4)(C); POMS SI 01120.203A, D.1. 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:

  1. i.  

    The trust is established and managed by a nonprofit association.

  2. ii.  

    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.

  3. iii.  

    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.

  4. iv.  

    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 01120.203D.1.

The Trust satisfies the initial requirement in the first sentence of section 1917(c)(4)(C) that the trust contain assets of a disabled individual. The Trust Declaration specifies that the grantor “shall only fund the trust with [] the assets and/or income of the Beneficiary.” Trust Decl., Art. IV, § 4.1; see also Art. IV, § 4.3; Art. IX, § 9.5 (all beneficiaries must be disabled). Additionally, the grantor acknowledges that the “sub-account is funded with only the assets and/or income of the Beneficiary . . . .” Joinder Agreement, Art. 2.

The Trust also complies with the four enumerated requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. The first requirement is that the trust be established and managed by an organization that has been established and certified under a state nonprofit statute. See Act § 1917(d)(4)(C)(i); POMS SI 01120.203D.1, D.3. On December 27, 2017, the IRS issued a letter stating that American Charitable Trust of Florida, Inc., is an exempt organization under section 501(c)(3) of the Internal Revenue Code, and the IRS lists American Charitable Trust of Florida, Inc., on its website of tax exempt organizations. SeePOMS SI 01120.203J (referring to the procedures in POMS SI 01130.689E for determining if an organization is a nonprofit or tax-exempt organization); POMS SI 01130.68E.2, E.3.a (indicating the agency considers an organization to be a non-profit organization if it produces a determination letter from the IRS and the agency can confirm an organization’s tax-exempt status via the IRS’s website). The Trust Declaration specifically states that the settlor, American Charitable Trust, has managerial control over the Trust. See Trust Decl. Art. I, § 1.06; see also Trust Decl., Art. VIII, § 8.1; Joinder Agreement, Art. 2, § 2.01 (stating trustee may pool sub-accounts for “investment and management purposes.”). Thus, the Trust meets the first requirement of the pooled trust exception.

The second requirement is that 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 01120.203D.1, D.4. The trust must also be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203D.4. The Trust provides for the creation of sub-accounts that the trustee may pool for management and investment purposes, and beneficiaries of the sub-accounts are entitled to an accounting. See Trust Decl., Art. II, §§ 2.4; Art. IV, § 4.1; Art. VIII, §§ 8.1, 8.2, 8.3; Joinder Agreement, Art. 2, § 2.01. Therefore, the Trust satisfies the second requirement for the pooled trust exception.

The Trust also complies with the pooled trust requirements because the sub-accounts are established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203D.1, D.5. A trust is established for the sole benefit of the individual if it benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201D.5. The Trust Declaration indicates that the beneficiary sub-accounts are established for the sole benefit of each beneficiary. See Trust Decl., Art. II, § 2.8.

To meet the fourth 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 01120.203D.1, D.8. The trust may give first priority to payment of taxes due to a state or federal government due to the beneficiary’s death and reasonable fees for administration of the trust estate. See POMS SI 01120.203D.8. Here, the Trust Declaration states that to the extent that amounts remaining in the beneficiary’s sub-account upon the death of the beneficiary are not retained by the Trust, the Trust will pay 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. See Trust Decl., Art. VI, § 6.2. To the extent that the Trust does not retain the funds in the account, the states are the first payees and have priority over payment of other debts and administrative expenses. See Trust Decl., Art. VI, § 6.2. The Trust will also provide payback for any state that may have provided medical assistance under a state Medicaid plan, and not be limited to any particular states nor any particular period of time. See Trust Decl., Art. VI, § 6.2. This provision of the Trust satisfies the fourth requirement for the pooled trust exception.

Accordingly, the Trust meets the requirements for pooled trusts under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

CONCLUSION

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

G. PS 19-011 Validity of Purported Pooled Trust - Florida, Supplemental Opinion

September 27, 2018

1. Syllabus

This Regional Chief Counsel opinion examines whether the National Pooled Trust (Amended Master Trust) meets the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act. The Amended Master Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. The Amended Master Trust now requires that sub-accounts be established solely for the benefit of individuals who are disabled, contains separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes, and distributes the property in a beneficiary’s sub-account to each state in which the beneficiary received government assistance based on each state’s proportionate share and gives the states priority as first payee after expenses allowed by the POMS.

2. Question

Whether the National Pooled Trust (Amended Master Trust) meets 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).

3. Opinion

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

4. Background

According to the information provided, the Social Security Administration (the agency) found Charles Buschmann, the number holder (NH), disabled effective March 23, 2016, and entitled to Supplemental Security Income. In a legal opinion dated October 10, 2017, we advised that the National Pooled Trust (Master Trust) did not meet the requirements for a pooled trust under Psection 1917(d)(4)(C) of the Act and the relevant POMS provisions (copy attached).[20]

Specifically, we explained that the Trust sub-accounts were not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.D.5.[21]

On July 10, 2018, the Center for Special Needs Trust Administration (Trustee) submitted the Amended Master Trust to the agency for review.

5. Discussion

As discussed in our October 2017 legal opinion, to satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

(i) The trust is established and managed by a nonprofit association;

(ii) 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;

(iii) 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; and

(iv) 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); POMS SI 01120.203.D.1.

We previously determined that the Master Trust sub-accounts were not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.D.5. A trust is established for the sole benefit of the individual if it benefits no one but the individual whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.D.5.

The Master Trust stated: “Associated costs, if any, shall be a proper expense of the Trust and may be apportioned on a pro rata basis to all Trust sub-accounts or charged only against the Trust sub-account about which the Trustee seeks such advice or assistance.” Declaration, Art. 8, § 8.2. The relevant POMS section, however, provides that only cost for investment, legal, or other services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.2.c. Accordingly, we concluded this provision of the Master Trust contemplated the potential use of assets in a beneficiary’s sub-account for the benefit of others besides the beneficiary.

The Amended Master Trust provides that “Any associated costs that affect the Trust as a whole may be apportioned on a pro rata basis to all Trust sub-accounts, but any associated costs that affect individual sub-accounts shall only be charged against the Trust sub-account about which the Trustee seeks such advice or assistance.” Declaration, Art. 8, § 8.2. As such, the Amended Master Trust now complies with the requirement that sub-accounts be established solely for the benefit of individuals who are disabled. SeePOMS SI 01120.203.D.5.

We previously determined that the Master Trust complied with the remaining requirements in section 1917(d)(4)(C) of Act and the POMS provisions implementing those requirements. The Amended Master Trust documents state that the Trustee is a non-profit corporation. See Reformed and Restated Declaration of Trust (Declaration), Art. 2, § 2.12.[22]

The IRS also lists Trustee as a tax-exempt organization on its website and the Florida Department of State lists Trustee as a non-profit corporation.[23]

See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.D.3; see also POMS SI 01120.203.J (referring to the procedures in POMS SI 01130.689.E for determining if an organization is not for profit); POMS SI 01130.689.E (indicating the agency considers an organization to be a non-profit organization if it can verify it is a tax-exempt organization with the IRS). The Trustee also provided a November 7, 2003, letter from the IRS stating that the Trustee is an exempt organization under section 501(c)(3) of the Internal Revenue Code. Thus, the Amended Master Trust was established by and is managed by a nonprofit association as required by section 1917(d)(4)(C)(i) of the Act and the relevant POMS.

The Amended Master Trust also consists of separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes. See Declaration, Art. 2, § 2.13, Art. 7, § 7.1; Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.D.4. The Amended Master Trust also maintains records for each sub-account and provides an accounting for each beneficiary annually. See Declaration, Art. 7, § 7.1, 7.3; POMS SI 01120.203.D.4 (providing the Trust must be able to provide an individual accounting for each individual). Thus, the Amended Master Trust complies with section 1917(d)(4)(C)(ii) of the Act and the relevant POMS. The Amended Master Trust further states that the sub-accounts are established with the assets of the beneficiary, who must be a disabled person as defined in section 1614(a)(3) of the Act. See Declaration, Art. 2, §§ 2.1, 2.13, Art. 7, § 7.1; Act § 1917(d)(4)(C); POMS SI 01120.203.D.1, D.6. NH self-funded his sub-account on November 29, 2016, with a deposit of $39,526.26. See National Pooled Trust Joinder Agreement (Joinder Agreement) Attachment, Trustee Receipt and Acknowledgement of Trust Funding.

Finally, the Amended Master Trust contains language stating that, to the extent property is not retained by the Amended Master Trust , the property in a beneficiary’s sub-account shall be distributed to each state in which the beneficiary received government assistance based on each state’s proportionate share and gives the states priority as first payee after expenses allowed by the POMS. See Declaration, Art. 6, § 6; Joinder Agreement Art. 3, § 3.02 ; Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.D.8. These provisions comply with the Medicaid reimbursement requirements in section 1917(d)(4)(C)(vi) of the Act and the relevant POMS.

6. Conclusion

The Amended Master Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. If we may provide additional assistance, please contact Natalie Jemison, Assistant Regional Counsel, at 404-562-1573.

H. PS 18-082 Resource Status of a Trust Governed by Florida Law – Supplemental Opinion

Date: May 23, 2018

1. Syllabus

This Regional Chief Counsel (RCC) opinion examines whether the proposed amendment to a Master Pooled Trust and the Joinder Agreement, as amended, still comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act). (The amended Joinder Agreement contains a new provision regarding the termination of the sub-account upon the beneficiary’s death that differs from the provision in the Master Trust.) The RCC concludes that because the amended Joinder Agreement meets all the requirements for exception, and the proposed amendment to the Master Trust would establish that the amended Joinder Agreement supersedes contrary provisions in the Master Trust, that the trust still complies with the requirements for a pooled trust under the Act.

2. Opinion

QUESTION

Whether the Settlement Solutions National Pooled Trust Second Restatement (Master Trust) with the proposed amendment and the amended Joinder Agreement still comply 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).

SHORT OPINION

The amended Master Trust and Joinder Agreement 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 a memorandum dated January 11, 2017, our office advised that the December 2016 Master Trust and Joinder Agreement complied with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS. See POMS PS 01825.011 (PS 17-033).[24]

On March 23, 2018, the Foundation For Those With Special Needs, Inc. (Foundation), a non-profit organization and the successor trustee, noted that some states’ Medicaid agencies have unique requirements that may be inconsistent with the terms of the Master Trust. The Foundation proposed addressing state Medicaid requirements in the Joinder Agreement. The Foundation proposed an amendment to add Section 10.27 to the Master Trust as follows:

The terms of the Joinder Agreement (as defined in Section 11.06) shall supersede and control in the event of any conflicts with the provisions of this Master Trust to the extent necessary to ensure compliance with the subaccount beneficiary’s state Medicaid agency’s eligibility and/or trust requirements, so long as such provisions do not violate federal law or the POMS.

The Foundation also submitted a new Joinder Agreement. The Joinder Agreement contains a new provision regarding the termination of the sub-account upon the beneficiary’s death. The Joinder Agreement states that, upon a beneficiary’s death, any amounts remaining in his or her trust sub-account will be deemed surplus trust property. See Joinder Agreement. The grantor may elect to have all surplus funds retained by the Master Trust or to have the funds disbursed according to state payback option outlined in Section 6.04 of the Master Trust. See Trust Decl., Art. 6, § 6.04; Joinder Agreement, Sch. C.

DISCUSSION

Supplemental Security Income (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 (2018).[25] “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); see POMS SI 01120.010.B.

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. However, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

(i) “The trust is established and managed by a nonprofit association.

(ii) “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.

(iii) “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.

(iv) “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 subchapter.

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

The proposed amendment to the Master Trust would establish that the amended Joinder Agreement supersedes contrary provisions in the Master Trust. The proposed amendment also includes a severability clause for severing invalid or unenforceable provisions of the Joinder Agreement. For SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. Thus, the proposed severability clause would not nullify or sever any provisions in the Joinder Agreement that would not satisfy requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS. See POMS SI 01120.227.D.

Because, under the proposed amendment, the Joinder Agreement would be controlling, to qualify for the pooled trust exception, all provisions of any Joinder Agreement would need to meet the criteria in section 1917(d)(4)(C) without regard to the proposed severability clause. See POMS SI 01120.227.D.1.

The amended Joinder Agreement contains a new provision regarding the termination of the sub-account upon the beneficiary’s death that differs from the provision in the Master Trust. The additional language in Schedule C of the Joinder Agreement permits the Master Trust to retain all funds in the sub-account upon the beneficiary’s death even if there are sufficient funds to repay the state. See Trust Decl., Art. 6, § 6.04; Joinder Agreement, Sch. C. This provision still complies with section 1917(d)(4)(C) because the Act only requires repayment of state Medicaid assistance with funds from the sub-account that are not retained by the Master Trust. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.g.

The amended Joinder Agreement does not alter any other provisions of the Master Trust and Joinder Agreement. As discussed in our January 11, 2017, memorandum, the other provisions of the Master Trust comply with the remaining requirements in section 1917(d)(4)(C) of the Act and the POMS provisions implementing those requirements.

CONCLUSION

The proposed amendment to the Master Trust and the Joinder Agreement, as amended, comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions.

I. PS 17-121 Validity of Purported Pooled Trusts (FL, KY, MS)

Date: July 19, 2017

1. Syllabus

The Regional Chief Counsel (RCC) Opinion examined whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply 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 concluded that the Master Trusts do 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. 

2. Opinion

QUESTION

You asked whether the trusts established by the National Foundation for Special Needs Integrity, Inc. (NFSNI), in Florida, Kentucky, and Mississippi comply 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 Master Trusts do 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

According to the information provided, the Social Security Administration (SSA) determined M~ (FL Recipient), W~ (KY Recipient), and M~ (MS Recipient) (collectively, Recipients) were entitled to Supplemental Security Income (SSI) based on disability. SSA has since determined MS Recipient’s disability ceased.[26]

Each of the Recipients has established a sub-account in master trusts that NFSNI created. NFSNI provided a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code. NFSNI established a master trust in Florida on May 15, 2008 (Florida Master Trust); in Kentucky on October 17, 2008 (Kentucky Master Trust); and in Mississippi on February 24, 2009 (MS Master Trust) (collectively, Master Trusts). See Master Trusts, Recitals and Signatures. Each of the Master Trusts purports to be a “pooled trust” for purposes of the Act. Master Trusts, Art. 2.

FL Recipient created a sub-account in the FL Master Trust by execution of a joinder agreement dated March XX, 2009 (FL Joinder). Assets of the “M~ Trust” funded FL Recipient’s sub-account. FL Joinder, § II.A. Based on the information provided, this was a testamentary trust that failed as a special needs trust and was subsequently used to create FL Recipient’s sub-account in the FL Master Trust. KY Recipient created a sub-account in the KY Master Trust by execution of a joinder agreement dated August XX, 2013 (KY Joinder). Assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. MS Recipient created a sub-account in the MS Master Trust by execution of a joinder agreement dated January XX, 2014 (MS Joinder) (collectively, Joinder Agreements). MS Recipient’s own assets funded his sub-account. MS Joinder, § II.A.

The Master Trusts are intended to be administered for the sole benefit of qualified individual “Beneficiaries.” MS Trust, Art. 1, 2, 13.4; KY and FL Trusts, Art. 1, 2, 13.3. A Beneficiary is defined as a person with a disability as determined by the respective state law of the Master Trusts “and/or as qualified under § 1614(a)(3) of the Social Security Act and/or as determined by 42 U.S.C. § 1382c(a)(3). . . .” FL and MS Master Trusts, Art. 5.D.; KY Master Trust, Art. 5.D., and KY Joinder, § I.D. A “Grantor” of the FL and MS Master Trusts may be the Beneficiary or his or her guardian, parent, or grandparent, or a court order funding a sub-account. FL and MS Master Trusts, Art. 5.C. The KY Master Trust uses similar language, see KY Master Trust Art. 5.C., but the Kentucky joinder agreement states that a “Donor” funds a sub-account using funds that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity,” KY Joinder, § I.C.

The property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2.

The Trustee for each trust is NFSNI and may include its successors in interest and appointed co-Trustees. See Master Trusts, Art. 5.B. A Trustee may exercise powers provided under applicable state law trust codes, including designating a co-Trustee and making distributions for a Beneficiary’s supplemental needs during his or her lifetime. See Master Trusts, Art. 11, 13.2. The Master Trusts define “supplemental” to include payments made to a Beneficiary and payments to third parties during a Beneficiary’s lifetime for goods or services he or she receives. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The MS Master Trust may purchase real property for a Beneficiary so long as the owner is the MS Master Trust. See MS Master Trust, Art. 13.3.5. The MS Master Trust may also purchase a vehicle for a Beneficiary so long as the vehicle owner is not the MS Master Trust. See MS Master Trust, Art. 13.3.7.

The Master Trusts allow the Trustee to charge pro-rata to all sub-accounts “extraordinary administrative expenses or for the legal defense of the Trust Pool.” Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. The Master Trusts also allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties. . . .” Master Trusts, Art. 15.10.

A Trustee may terminate a Beneficiary’s sub-account. See Master Trusts, Art. 16.1. In doing so, the Trustee may “transfer the assets in the Beneficiary’s [sub-account] . . . to a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Id.

The Trusts define “Remainder” as the amount of money remaining in a Beneficiary’s sub-account after death and after payment of reasonable and allowable administrative expenses of the estate. FL and MS Master Trusts, Art. 5.K; KY Master Trust, Art. 5.L. To the extent that the Trusts do not retain this Remainder, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.

The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the Master Trusts. See id.

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).[27] “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, 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.

Assets of the Disabled Individual

Initially, we note that the KY and MS Master Trusts do not satisfy the threshold requirement of containing the assets of a disabled individual. See Act § 1917(d)(4)(C); POMS SI 01120.203.B.2.a. Based on the information provided, SSA has found MS Recipient’s disability ceased, and MS Recipient has not filed an appeal. Thus, the MS Master Trust does not involve a “disabled” individual to the extent it applies to MS Recipient.

Although SSA has found KY Recipient disabled, the KY Master Trust does not contain “the assets of” KY Recipient. The joinder agreement states a “Donor” has been funding KY Recipient’s sub-account using assets that “shall not be assets to which Beneficiary had legal ownership, an interest in ownership, or any other legally colorable claim in law or equity.” KY Joinder, § I.C. Consistent with these definitions, assets from the “V~ Trust UAD” funded KY Recipient’s sub-account. KY Joinder, § II.A. Although neither the Act nor the POMS defines the term “assets of,” its plain meaning indicates the assets in a valid pooled trust should belong to the SSI beneficiary claiming the benefit of the pooled trust exception. The Act’s plain meaning is conclusive where, as here, it would not lead to lead to an unintended result. See United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242 (1989). Both the source of the funds and the definitions of the KY Master Trust indicate KY Recipient’s sub-account was not funded with assets belonging to KY Recipient, so the KY Master Trust does not involve “assets of” a disabled individual.

Although we conclude the KY and MS Master Trusts do not involve valid pool trusts based on the limited circumstances presented, we nonetheless address their provisions below as many of them overlap with the FL Master Trust provisions.

Established and Managed by a Non-Profit

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. NFSNI established each of the Master Trusts and manages them as Trustee. See Master Trusts, Recitals and Signature, Art. 5.B. The documents provided include a July XX, 2007, letter from the Internal Revenue Service (IRS) stating that NFSNI is an exempt organization under section 501(c)(3) of the Internal Revenue Code, and the IRS lists NFSNI as a tax-exempt organization on its website.[28] Thus, it appears the Master Trusts are established and maintained by a nonprofit entity. See 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).

However, the Master Trusts create a possibility of management by a for-profit entity. The Trustee for each trust is NFSNI and may include its successors in interest and any appointed co-Trustees. See Master Trusts, Art. 5.B. The Master Trusts contain no restriction that successors in interest or co-Trustees must only be nonprofit entities. For pooled trusts, a nonprofit management entity like NFSNI may employ the services of a for-profit entity so long as the nonprofit retains ultimate managerial control. See POMS SI 01120.225.B, D. However, such a for-profit entity employed by a nonprofit pooled trust management entity cannot make discretionary disbursements. See POMS SI 01120.225.E. Here, the potential exists that for-profit successors in interest or co-Trustees could exercise all the powers of the Trustee, including making discretionary disbursements for a Beneficiary’s supplemental needs. See Master Trusts, Art. 5.B., 11, 13.2. We have not received any material indicating NFSNI has actually appointed a for-profit successor in interest or co-Trustee for any of the Master Trusts involved in this opinion. Thus, we conclude the Master Trusts meet the first numbered requirement of the pooled trust exception. However, because other revisions to the Master Trusts are required as discussed below, NFSNI should consider redefining “Trustee” or the powers to be exercised by a co-Trustee to ensure a nonprofit entity retains ultimate managerial control of the Master Trusts at all times.

Separate Accounts and Pooled Investment

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 property of each Master Trust is considered “one entity” for investment purposes, but each sub-account is administered for the sole benefit of individual Beneficiaries. See Master Trusts, Art. 2. A Beneficiary of one of the Master Trusts is entitled to an annual accounting. See Master Trusts, Art. 10.2. Our review confirms that the Master Trusts meet the second numbered requirement of the pooled trust exception.

Established for the Sole Benefit of Disabled Individuals

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. More specifically, 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.

Our review of the Master Trusts confirms that they limit lifetime distributions to a Beneficiary or to a third-party for the benefit of the Beneficiary. See FL Master Trust, Art. 5.J., 13.5; KY Master Trust, Art. 5.J., 13.5 and KY Joinder, § I.K.; MS Master Trust, Art. 5.J., 13.6. The Master Trusts allow for reasonable compensation for Trustees. See Master Trusts, Art. 15.8. The Master Trusts also charge Beneficiaries an annual fee of 1.5% of the sub-account balance to pay for “day-to-day administration” of the sub-account. Joinder Agreements, § III. These provisions generally comply with the “sole benefit” requirement. See POMS SI 01120.201.F.1, F.2.b.-c.

However, certain provisions of the Master Trusts could be read to allow a benefit to third parties during a Beneficiary’s lifetime. The Master Trusts allow the Trustee to charge “extraordinary administrative expenses or for the legal defense of the Trust Pool” pro-rata to all sub-accounts. Master Trusts, Art. 10.4. Extraordinary administrative expenses or legal challenges incurred by specific sub-accounts will only be charged to the affected sub-accounts, unless the issue “may materially affect the integrity or administration of other sub-accounts.” Id. In addition, the Master Trusts provide that the trust will indemnify Trustees and their agents for “any and all claims, actions, suits, liabilities, fines or penalties.” Master Trusts, Art. 15.10.[29] The relevant POMS provision provides that only payments of legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.2.c. Here, the Master Trusts’ provisions contemplate potentially using sub-account assets to pay for administrative or legal expenses without requiring that a Beneficiary had actually incurred those expenses. The provisions therefore contemplate the potential use of assets in a Beneficiary’s sub-account for the benefit of others besides the Beneficiary, and thus the sub-accounts are not established for the “sole benefit” of any sub-account holder.

The Master Trusts also contain early termination provisions that allow for the termination of a trust sub-account before the death of the Beneficiary. See Master Trusts, Art. 16.1. Early termination provisions generally violate the third statutory element required for valid pooled trusts. See POMS SI 01120.203.B.2.e. Such provisions may be acceptable if they otherwise comply with all the requirements for pooled trusts and provide for Medicaid payback, disallow third parties to benefit except for payment of certain approved expenses, and give termination power to someone other than the trust beneficiary. See POMS SI 01120.199.F. However, the Master Trusts’ early termination provisions here do not satisfy any of these requirements. See Master Trusts, Art. 16.1. Where an early termination provision does not satisfy the above requirements, it may still be acceptable if it “contain[s] specific language” that limits distribution only to another valid pooled trust and it disallows other expenses. POMS SI 01120.199.F.2. Here, NFSNI may terminate a Beneficiary’s sub-account and “transfer the assets in the Beneficiary’s [sub-account] . . . to a qualified private or geographically appropriate and qualified not-for-profit pooled special needs trust.” Master Trusts, Art. 16.1. The term “pooled special needs trust” is not sufficiently specific to limit transfer of a sub-account’s funds to another valid pooled trust. See POMS SI 01120.199.F.2. Therefore, the early termination provision violates the “sole benefit” requirement for pooled trusts.

We also note that the MS Master Trust may purchase a vehicle for a Beneficiary provided the owner of the vehicle is not the MS Master Trust. See MS Master Trust, Art. 13.3.7. If funds from a trust that is a resource are used to purchase a vehicle, the individual (or the trust) must be shown as its owner. See POMS SI 01120.201.F.1. The documents provided do not indicate that a vehicle was purchased for MS Recipient or that the owner was listed as someone other than MS Recipient. Thus, this provision does not violate the “sole benefit” requirement based on the information presented. However, because other revisions to the MS Master Trust are required, NFSNI should consider modifying the vehicle-purchase provision to clarify who will be listed as the owner of a vehicle purchased for a Beneficiary of the MS Master Trust.

Medicaid Reimbursement

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. The trust must contain language “substantially similar” to the language in the Act and POMS. POMS SI 01120.203.B.2.g. Further, the trust “must provide payback for any State(s) that may have provided medical assistance under the State Medicaid plan(s) and not be limited to any particular State(s).” Id.

The Master Trusts provide that, to the extent any amounts remain in a sub-account after payment of reasonable and allowable administrative expenses and amounts retained by the Master Trusts, the respective state Medicaid agencies “shall be first payee and have priority of payment over any other debts and administrative expenses” except those permitted by SSA policy. FL and KY Master Trusts, Art. 14.1; MS Master Trust, Art. 14. If a Beneficiary has received Medicaid benefits in more than one state, each state that has provided benefits will be repaid a proportionate share of the amount remaining in the Beneficiary’s sub-account. See FL and KY Master Trusts, Art. 14.2; MS Master Trust, Art. 14.

This language is insufficient to meet the fourth numbered requirement because the language is not substantially similar to that required by the POMS. The Medicaid payback provisions at issue limit the payback to either the state in which the respective trust is established or to multiple states. For example, a Beneficiary participating in the MS Master Trust could receive Medicaid assistance only from Alabama and, upon death, his or her sub-account would not be required to repay Alabama for any Medicaid assistance. This language is therefore insufficient to satisfy the fourth numbered requirement for pooled trusts.[30]

Severability Clauses

The Master Trusts state that, if any provision of the trust is deemed invalid, that provision is invalidated. See Master Trusts, Art. 15.4, Joinder Agreements, § IX.C. According to the Master Trusts, the invalidated provision will not invalidate the remaining provisions of the trust. See id. However, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, a trust must meet the criteria in section 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Master Trusts’ severability clause does not nullify or sever the provisions discussed above that do not satisfy the pooled trust requirements. See POMS SI 01120.227.D.

CONCLUSION

For the reasons discussed above, the Master Trusts do 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.

J. PS 17-033 Resource Status of a Trust Governed by Florida Law – Supplemental Option

Date: January 11, 2017

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether the Settlement Solutions National Pooled Trust Second Restatement (Master 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). It was concluded that the amended Master Trust complies with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant provisions of the POMS. 

2. Opinion

QUESTION

Whether the Settlement Solutions National Pooled Trust Second Restatement (Master 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 amended Master Trust complies 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 a memorandum dated April 27, 2016, our office advised that the August 2009 Master Trust for the Settlement Solutions National Pooled Trust did 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. See POMS PS 01825.011 (PS 16-125). On March 16, 2016, the Foundation For Those With Special Needs, Inc. (Foundation), the successor trustee, amended the Master Trust. In a memorandum dated October 17, 2016, our office advised that the March 2016 Master Trust did 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.*[31] We explained that, as written, the trust sub-accounts were not established for the sole benefit of each beneficiary. In particular, Article 7, section 7.01, of the March 2016 Master Trust allowed the Trustee to apportion the costs and expenses of managing the Master Trust on a pro rata basis to all trust sub-accounts or to charge only the affected sub-account.

On December 9, 2016, the Foundation amended Article 7, section 7.01, to read:

General administrative costs and expenses of the Trust shall be a proper expense of the Trust overall. Associated costs, if any, pertaining to a particular sub-account shall be a proper expense of the Trust but shall be charged only against the Trust sub-account about which the Trustee seeks such advice or assistance.

Settlement Solutions National Pooled Trust Second Restatement (Trust. Decl.).

DISCUSSION

As discussed in our October 17, 2016 memorandum, to establish a pooled trust under section 1917(d)(4)(C) of the Act, the accounts in the trust must be “established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)).” Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if the trust benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e. The trust, however, can provide for reasonable compensation to manage the trust, as well as reasonable legal costs rendered on behalf of the individual with regard to the trust. See POMS SI 01120.201.F.2.c.

The amended Master Trust complies with the requirement that the trust sub-accounts be established for the sole-benefit of the beneficiary. The Master Trust provides that separate trust sub-accounts shall be established and maintained for the sole benefit of each beneficiary. See Trust Decl., Art. 3, § 3.01; Art. 11, § 11.18. Amended Article 7, section 7.01, no longer allows the Trustee to charge on a pro rata basis costs and expenses of managing the Trust to all trust sub-accounts regardless of whether all trust sub-accounts are affected. Rather, the amendment specifies that costs and expenses for managing a particular trust sub-account will only be charged against the affected sub-account. See Trust Decl., Art. 7, § 7.01.

The amended Master Trust complies with the remaining requirements in 1917(d)(4)(C) of the Act and the POMS provisions implementing those requirements, as discussed in our October 17, 2016 memorandum.

CONCLUSION

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

K. PS 17-026 Resource Status of a Trust Governed by Florida Law – Supplemental Opinion

Date: December 16, 2016

1. Syllabus

The Regional Chief Counsel (RCC) opinion examines whether the Florida Public Guardianship Pooled Special Needs Trust (Amended Master Trust) meets 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). It was concluded that the Amended Master Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

2. Opinion

QUESTION

Whether the Florida Public Guardianship Pooled Special Needs Trust (Amended Master Trust) meets 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 Amended Master Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

BACKGROUND

In a memorandum dated August 5, 2016, we advised that the Foundation for Indigent Guardianship, Inc., for the State of Florida Public Guardianship Pooled Special Needs Trust (Master Trust) did not meet the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions. We explained that the Master Trust Declaration of the Foundation for Indigent Guardianship, Inc., for the State of Florida Public Guardianship Pooled Special Needs Trust (Declaration) did not definitively show that the Master Trust was established and managed by a nonprofit association and that it did not show that trust sub-accounts were established solely for the benefit of each beneficiary.

In particular, the Declaration, at Article 9, §§ 9.6, 9.10, allowed for a Trust Protector to appoint a Successor Trustee and the Master Trust did not explicitly limit the Trust Protector’s authority to appoint only a nonprofit association to such role. Article 11, § 11.8, of the Declaration also allowed the Trust Protector and Trustees to delegate any rights or duties to service providers without an explicit requirement for such providers to be nonprofit associations. Under Article 9, § 9.9, of the Declaration, the Trust Protector was also entitled to compensation and reimbursement for costs and expenses incurred in the management and administration of the Master Trust, which suggested that the Trust Protector, which was not a nonprofit association, might take actions that would be considered management of the Master Trust. The Declaration further contained provisions that resulted in a finding that the Trust sub-accounts were not established for the sole benefit of each beneficiary. Article 7, § 7.1, contained provisions that could have allowed the Administrative Trustee to refund property to a grantor other than the trust sub-account beneficiary during the beneficiary’s lifetime. Article 8, § 8.5, also allowed any costs of defending the Master Trust or any sub-accounts in litigation or dispute resolution to be apportioned on a pro rata basis to all sub-accounts.

On November 28, 2016, the Foundation for Indigent Guardianship, Inc. (FIG), a nonprofit association,[32] amended the Master Trust. See Amended and Restated Master Trust Declaration of the Florida Public Guardianship Pooled Special Needs Trust (Amended Declaration). The Amended Declaration provides that the Amended Master Trust was established by FIG and the Administrative Trustee, the Advocates & Guardians for the Elderly & Disabled, Inc. (AGED), a nonprofit organization,[33] as a pooled special needs trust pursuant 42 U.S.C. § 1396p (section 1917 of the Act) for the sole benefit of Trust beneficiaries under the Amended Master Trust. See Amended Declaration, Art. 1, §§ 1.1, 1.4, Art. 2, § 2.1. Trust beneficiaries must be individuals considered disabled as defined in section 1614(a)(3) of the Act. See Amended Declaration, Art. 1, § 1.16. The Amended Declaration also provides that a Trust Beneficiary Advocate may, but is not required to be, appointed and that such person or entity assists a grantor or beneficiary in working with the Administrative Trustee to accomplish the intent and purpose of a particular joinder agreement. See Amended Declaration, Art. 1, § 1.17, Art. 4, § 4.2(E).

The Administrative Trustee manages and administers the Trust sub-accounts, including determining the amount of each sub-account to invest and making decisions regarding the use of funds for each beneficiary. See Amended Declaration, Art. 2, § 2.6. FIG has the sole authority to remove the Administrative Trustee and appoint a Successor Administrative Trustee, which must also be a nonprofit entity. See Amended Declaration, Art. 2, §§ 2.1 (stating that the Amended Master Trust “is and shall” be managed by a nonprofit corporation), 2.7. Although the Amended Master Trust allows for delegation of investment decision-making authority to an investment agent as provided by Florida State law, such investment agent remains subordinate to the Administrative Trustee as the Administrative Trustee and FIG can change the investment agent on 30 days’ notice. See Amended Declaration, Art. 9, § 9.3.

A separate Trust sub-account is established and maintained for the sole benefit of each beneficiary and such sub-accounts are pooled for investment and management purposes. See Amended Declaration, Art. 1, § 1.18, Art. 6, §§ 6.1, 6.2. A grantor for the trust sub-accounts can be a parent, grandparent, legal guardian, the beneficiary, or any person or entity acting pursuant to a court order who contributes money or property to the trust sub-account, including any person or entity that contributes his, her, or its own property for the sole benefit of a beneficiary, whether by gift, will, contract, or agreement. See Amended Declaration, Art. 1, § 1.7. The Amended Master Trust maintains records for each sub-account, provides an accounting for each beneficiary to FIG monthly, and allows inspection at all reasonable times of all records by beneficiaries or their Trust Beneficiary Advocate. See Amended Declaration, Art. 6, §§ 6.6, 6.7.

The assets in the Amended Master Trust or held in any sub-account for a beneficiary are not intended for the primary support of the beneficiaries. See Amended Declaration, Art. 3, § 3.1, Art. 5, § 5.1. Distributions should not be made to or for the benefit of a beneficiary if the effect of such distribution would be to disqualify or prevent a beneficiary from becoming eligible for any means-tested government assistance program. See Amended Declaration, Art. 1, § 1.11, Art. 5, § 5.2. The Administrative Trustee, in its sole discretion, can make a distribution for food or shelter even though such distribution may reduce or eliminate for a period of time Supplemental Security Income or other means-tested government assistance. See Amended Declaration, Art. 5, § 5.2. The trustees and grantors do not owe any obligation of support to any of the beneficiaries and no beneficiaries have any right of entitlement to trust corpus or income, except as the Administrative Trustee elects to disburse the same in its sole discretion. See Amended Declaration, Art. 3, § 3.1, Art. 5, §§ 5.1, 5.3. No part of the Master Trust or a trust sub-account can be subject to anticipation or assignment by a beneficiary, and cannot be subject to attachment or control by any public or private creditor of the beneficiary or be taken by any legal or equitable process by any voluntary or involuntary creditor, including those providing support and maintenance to a beneficiary. See Amended Declaration, Art. 3, § 3.2. A beneficiary cannot compel a distribution from the Amended Master Trust or a trust sub-account maintained for that beneficiary under any circumstances. See Amended Declaration, Art. 3, § 3.1. All distributions are made in the sole discretion of the Administrative Trustee. See Amended Declaration, Art. 5, § 5.1.

Upon the death of a beneficiary, any amounts remaining in that beneficiary’s trust sub-account are surplus and retained and administered according to 42 U.S.C. § 1396p(d)(4)(C). See Amended Declaration, Art. 7, § 7.2. All property not retained by the Amended Master Trust after a beneficiary’s death is first used to pay administrative expenses as authorized under POMS SI 01120.203, then distributed to each state in which the beneficiary received government assistance up to the amount of that assistance. See Amended Declaration, Art. 7, § 7.3. A trust sub-account may only be terminated upon the death of the beneficiary or the depletion of all funds in the account. See Amended Declaration, Art. 8.

The Declaration provides that the costs, fees, and expenses of defending the Amended Master Trust or any sub-accounts[34] in litigation or dispute resolution may be charged against the sub-account affected by the action defended against. See Amended Declaration, Art. 6, § 6.9.

DISCUSSION

Supplemental Security Income (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 (2016).[35] “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); see POMS SI 01120.010.B.

Generally, 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, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

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; and

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); POMS SI 01120.203.B.2.a.

The Amended Master Trust complies with all the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Unlike the prior Master Trust, the Amended Declaration shows that the Amended Master Trust was established by and is managed by nonprofit associations and the sub-accounts are established for the sole benefit of each beneficiary.

The entities that established the Amended Master Trust, FIG and AGED, are nonprofit associations as shown by the IRS inquiries cited above. See Amended Declaration, Art. 1, §§ 1.1, 1.4. The Amended Declaration also shows that AGED, as the Administrative Trustee, manages the Amended Master Trust. See Amended Declaration, Art., 2 § 2.6, Art. 5, §§ 5.1-5.6. Even if the Administrative Trustee is changed, the Amended Declaration provides that any successor trustee managing the Amended Master Trust “shall” be a non-profit association. See Amended Declaration, Art. 2, §§ 2.1, 2.7. The Amended Declaration removed the position of a Trust Protector that the original Master Trust contemplated and which had been granted contingent authorities that could have resulted in trust management by an entity other than a nonprofit association. Although there is a new Trust Beneficiary Advocate position allowed in the Amended Master Trust, there is no indication that such individual or entity has any ability to control or manage the Amended Master Trust or the trust sub-accounts. See Amended Declaration, Art. 1, § 1.17. Additionally, the Amended Master Trust allows for delegation of investment decision-making authority to an investment agent but such investment agent remains subordinate to the Administrative Trustee and FIG at all times. See Amended Declaration, Art. 9, § 9.3.

Next, the trust sub-accounts are established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if the trust benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e.

The Amended Declaration represents that the trust sub-accounts are established for the sole benefit of each beneficiary and we found no provisions creating contingent interests that could benefit other parties during the beneficiary’s lifetime. The trust sub-accounts cannot be terminated by anything other than the death of the beneficiary or the depletion of the funds in the trust-sub account. See Amended Declaration, Art. 8. The Amended Declaration permits the costs, fees, and expenses of defending the Amended Master Trust or any sub-accounts in litigation or dispute resolution to be levied only against trust sub-accounts affected by the action defended against. See Amended Declaration, Art. 6, § 6.9; POMS SI 01120.201.F.2.c. Therefore, the Amended Declaration does not contemplate the potential use of a beneficiary’s assets in a sub-account for the benefit of others besides the beneficiary, as had the original Master Trust.

The Amended Master Trust complies with the remaining requirements in 1917(d)(4)(C) of Act and the implementing POMS provisions. The Amended Master Trust consists of separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes. See Amended Declaration, Art. 1, § 1.18, Art. 6, §§ 6.1, 6.2; Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a.[36] The Administrative Trustee maintains records for each sub-account and provides an accounting for each beneficiary to FIG monthly and allows inspection at all reasonable times of all records by beneficiaries or their Trust Beneficiary Advocate. See Amended Declaration, Art. 6, §§ 6.6, 6.7; POMS SI 01120.203.B.2.d (providing the trust must be able to provide an accounting for each individual). The Amended Master Trust requires that the grantor establishing a trust sub-account be the beneficiary’s parent, grandparent, legal guardian, the beneficiary himself or herself, or a person acting at the direction of a court order to execute a Joinder Agreement. See Amended Declaration, Art. 1, § 1.7; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a, B.2.f. The Amended Master Trust also requires that the beneficiary for each trust sub-account be disabled as defined in section 1614(a)(3) of the Act. See Amended Declaration, Art. 1, § 1.16; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a. Finally, the Amended Declaration contains language stating that, to the extent property is not retained by the Amended Master Trust, the property in a beneficiary’s sub-account shall be distributed to each state in which the beneficiary received government assistance based on each state’s proportionate share and gives the states priority as first payee after expenses allowed by the POMS. See Amended Declaration, Art. 7, § 7.3; Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g.

CONCLUSION

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

L. PS 16-172 Resource Status of a Trust Governed by Florida Law

Date: August 5, 2016

1. Syllabus

This Regional Chief Counsel (RCC) opinion discusses whether the Foundation for Indigent Guardianship, Inc. for the State of Florida Public Guardianship Pooled Special Needs Trust (Master Trust) meets all of the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). The RCC determined the Master Trust does not meet all the requirements for the pooled trust exception as the trust does not definitively show that it was established by and is managed by a nonprofit association. Furthermore, the trust sub-accounts are not established solely for the benefit of each beneficiary.

2. Opinion

QUESTION

You asked whether the Foundation for Indigent Guardianship, Inc. for the State of Florida Public Guardianship Pooled Special Needs Trust (Master Trust) meets 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 Master Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the relevant POMS provisions. As written, the Master Trust does not definitively show that it was established by and is managed by a nonprofit association and does not show that trust sub-accounts are established solely for the benefit of each beneficiary. The Master Trust meets the other requirements of section 1917(d)(4)(C) and the relevant POMS provisions.

BACKGROUND

The Foundation for Indigent Guardianship, Inc., (FIG) and The Center for Special Needs Trust Administration, Inc., (Administrative Trustee) established the Master Trust as a pooled “special needs” trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit of disabled persons who become beneficiaries of the Master Trust. See Master Trust Declaration of the Foundation for Indigent Guardianship, Inc., for the State of Florida Public Guardianship Pooled Special Needs Trust (Declaration), Art. 1, § 1.1. The Declaration identifies FIG and Administrative Trustee as nonprofit organizations, and the Internal Revenue Service (IRS) lists FIG as a tax-exempt organization. See Declaration, pmbl., Art. 1, §§ 1.6, 1.7; Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=&names=%22foundation+for+indigent+guardianship%22&city=&state=FL&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited July 22, 2016). The Declaration provides for a “Trust Protector,” which is identified as Berkshire Trust Advisory Services Corporation (Berkshire) or any successor in interest to Berkshire, which is identified as a Florida corporation. See Declaration, Art. 2, § 2.10. Unlike FIG, Berkshire is not listed on the IRS tax-exempt list. The Declaration provides that no trust protector shall ever be responsible for investing or managing the Master Trust’s assets or serve as custodian of them and that the Administrative Trustee is responsible for the financial management of the trust assets. See Declaration, Art. 9, § 9.5. The Trust Protector is authorized to appoint a Successor Administrative Trustee, which can be a bank, trust company, or attorney, which has experience in administration of special needs trusts. See Declaration, Art. 9, §§ 9.6, 9.10. Additionally, the Declaration allows the Trust Protector or Trustees to delegate any rights or duties to service providers to the extent permitted by law. See Declaration, Art. 11, § 11.8. The Declaration also entitles the Trust Protector to compensation and to be reimbursed for any costs and expenses incurred “in the management and administration” of the Master Trust. See Declaration, Art. 9, § 9.9.

The Declaration provides that a separate Master Trust sub-account is established and maintained for the sole benefit of each beneficiary and such sub-accounts are pooled for investment and management purposes. See Declaration, Art. 2, § 2.11, Art. 8, § 8.1. A grantor for the trust sub-accounts can be a parent, grandparent, legal guardian, the beneficiary, or any person or entity acting pursuant to a court order who contributes money or property to the Master Trust, including any person or entity that contributes his, her, or its own property for the sole benefit of a beneficiary, whether by gift, will, contract, or agreement. See Declaration, Art. 2, § 2.2. The Master Trust maintains records for each sub-account and provides an accounting for each beneficiary upon reasonable request, but no more often than annually. See Declaration, Art. 8, §§ 8.1, 8.3.

The Declaration states that beneficiaries of the Master Trust are disabled persons as defined by section 1614(a)(3) of the Act. See Declaration, Art. 2, § 2.1. The assets in the Master Trust or held in any sub-account for a beneficiary are not intended for the primary support of the beneficiaries and can be used only for their supplemental care and/or supplemental needs. See Declaration, Art. 3, § 3.1, Art. 5, § 5.1. The trustees and grantors do not owe any obligation of support to any of the beneficiaries and no beneficiaries have any right of entitlement to trust corpus or income, except as the Administrative Trustee elects to disburse the same in its sole, complete, absolute, and unfettered discretion. See Declaration, Art. 3, § 3.1. No part of the Master Trust or a trust sub-account can be subject to anticipation or assignment by a beneficiary, and cannot be subject to attachment or control by any public or private creditor of the beneficiary or be taken by any legal or equitable process by any voluntary or involuntary creditor, including those providing support and maintenance to a beneficiary. See Declaration, Art. 3, § 3.2. The beneficiary cannot compel a distribution from the Master Trust or a trust sub-account maintained for that beneficiary under any circumstances. See Declaration, Art. 3, § 3.2. All distributions are made in the sole and absolute discretion of the Administrative Trustee. See Declaration, Art. 5, § 5.1.

Upon the death of a beneficiary, any amounts remaining in that beneficiary’s Master Trust sub-account are retained by the Master Trust as surplus Master Trust property. See Declaration, Art. 6, § 6.1. All property not retained by the Master Trust after a beneficiary’s death is distributed to each state in which the beneficiary received government assistance up to the amount of that assistance. See Declaration, Art. 6, § 6.2. The Master Trust intends to and anticipates donating all retained surplus funds after payment of operating expenses to the Florida Statewide Public Guardianship Office or a successor agency. See Declaration, Art. 1, § 1.8, Art. 6, § 6.2.

In some circumstances where the Administrative Trustee believes that the principal or income in a Master Trust sub-account will be required to be used for the care of a beneficiary that has been or would be provided by a government, agency, or department thereof, the Administrative Trustee can exercise its discretion to, among other options, determine the Master Trust has become impossible to implement for the beneficiary and refund the property to a grantor. See Declaration, Art. 7, § 7.1(b). The Administrative Trustee is supposed to consider the consequences of any such distribution on a beneficiary’s public benefit to be consistent with the purpose of the Master Trust. See Declaration, Art. 7, § 7.1. Additionally, the Administrative Trustee may refund all or any portion of the property in a Master Trust sub-account to a grantor if it becomes impossible to fulfill the conditions of the Master Trust with regard to a beneficiary for reasons other than the death of the beneficiary. See Declaration, Art. 7, § 7.2.

The Declaration provides that the costs of defending the Master Trust or any Master Trust sub-accounts in litigation or dispute resolution may in the sole discretion of the Trust Protector be: a) apportioned on a pro rata basis to all Master Trust sub-accounts; or b) charged against the Master Trust sub-account affected by the action defended against. See Declaration, Art. 8, § 8.5. The Declaration also contains a severability clause providing that any provision of the Master Trust “adjudged invalid or unenforceable” under the laws of any place where the terms of the Master Trust are to be performed or sought to be enforced is deemed inoperative without invalidating such provision elsewhere or any of the other provisions of the Master Trust. See Declaration, Art. 11, § 11.6.

DISCUSSION

Supplemental Security Income (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 (2016). “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); see POMS SI 01120.010.B.

Generally, 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, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

(i) The trust is established and managed by a nonprofit association;

(ii) 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;

(iii) 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; and

(iv) 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); POMS SI 01120.203.B.2.a.

As written, the Master Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions. Specifically, the Declaration does not definitively show that the Master Trust was established by and is managed by a nonprofit association and the sub-accounts are not established for the sole benefit of each beneficiary.

While at least one nonprofit association, FIG, established the Master Trust, it is not clear that a nonprofit association manages the Master Trust. The Trust Protector is not listed on the IRS tax-exempt list cited above. While the Declaration states no trust protector shall ever be responsible for investing or managing the Master Trust’s assets or serve as custodian and that the Administrative Trustee is responsible for the financial management of the trust assets, See Declaration, Art. 9, § 9.5, the Trust Protector is authorized to appoint a Successor Administrative Trustee. See Declaration, Art. 9, §§ 9.6, 9.10. Although the Declaration identifies a “Successor Trustee” as a person or entity meeting the nonprofit association requirement, see Declaration, Art. 2, § 2.8, the Trust Protector’s powers of appointment are not so narrowly defined and contemplate appointing entities that are not typically nonprofit associations, such as a bank, trust company, or attorney. See Declaration, Art. 9, § 9.10. These provisions call into question whether a Successor Trustee would be a nonprofit association as required. Additionally, the Declaration allows the Trust Protector or Trustees to delegate any rights or duties to service providers to the extent permitted by law and there is no explicit requirement for such providers to be nonprofit associations. See Declaration, Art. 11, § 11.8. Finally, the Trust Protector is entitled to compensation and to be reimbursed for any costs and expenses incurred “in the management and administration” of the Master Trust. See Declaration, Art. 9, § 9.9. This language suggests that the Trust Protector could take some actions that would be considered as management of the Master Trust.

Next, we find that the trust sub-accounts are not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if the trust benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a.

Generally, a trust is not for the sole benefit of an individual if the trust account:

(a) provides a benefit to another individual or entity during the individual’s lifetime; or

(b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e.

Although the Declaration represents that the Trust sub-accounts are established for the sole benefit of each beneficiary, there are provisions in the Declaration creating contingent interests that could benefit other parties during the individual’s lifetime. If the Administrative Trustee believes that the principal or income in a Trust sub-account for a beneficiary will be required to be used for the care of a beneficiary that has been or would be provided by a government, agency, the Administrative Trustee could refund the property to a grantor. See Declaration Art. 7, § 7.1(b). Although the Administrative Trustee is supposed to consider the consequences of any such distribution on a beneficiary’s public benefit to be consistent with the purpose of the Master Trust, the Administrative Trustee is not expressly required to act in such a manner to avoid distributing Trust sub-account principal or income to someone other than the beneficiary. See Declaration, Art. 7, § 7.1. This results in the possibility that other individuals would benefit from the Trust sub-account during the beneficiary’s lifetime. See POMS SI 01120.203.B.2.e.

The Declaration also permits the costs of defending the Master Trust or any sub-accounts in litigation or dispute resolution to potentially be apportioned on a pro ata basis to all sub-accounts in the discretion of the Trust Protector. See Declaration, Art. 8, § 8.5. The relevant POMS section provides that only legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. POMS SI 01120.201.F.2.c. Therefore, this section of the Declaration contemplates the potential use of a beneficiary’s assets in a sub-account for the benefit of others besides the beneficiary.

The Declaration contains a severability clause providing that any provision of the Master Trust “adjudged invalid or unenforceable” is deemed inoperative without invalidating such provision elsewhere or any of the other provisions of the Master Trust. See Declaration § 11.6. However, a null and void clause or savings clause does not cure an otherwise defective trust instrument for SSI purposes or overcome missing or conflicting trust provisions. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Master Trust must meet the criteria in section 1917(d)(4)(C) without regard to its severability clause and trust provisions that fail to meet any of the required criteria must be amended or removed to except the trust. See POMS SI 01120.227D.1. Thus, the Master Trust’s severability clause does not nullify or sever the provisions discussed above that do not comply with the pooled trust requirements of the Act and POMS.

The Master Trust complies with the remaining requirements in 1917(d)(4)(C) of Act and the implementing POMS provisions. FIG identifies itself as a nonprofit organization and the Internal Revenue Service (IRS) lists it as a tax-exempt organization on its website. See supra; Declaration § 1.6; Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.a; see also POMS SI 01130.689.E.2 (indicating SSA considers an organization to be a nonprofit organization if it can verify it is a tax-exempt organization with the IRS); POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is not for profit). The Master Trust consists of separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes. See Declaration, Art. 8, § 8.1; Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. The Master Trust maintains records for each sub-account and provides an accounting for each beneficiary upon reasonable request. See Declaration, Art. 8, §§ 8.1, 8.3; POMS SI 01120.203.B.2.d (providing the trust must be able to provide an accounting for each individual). The Master Trust requires that the grantor establishing a trust sub-account be the beneficiary’s parent, grandparent, legal guardian, the beneficiary himself or herself, or a person acting at the direction of a court order to execute a Joinder Agreement. See Declaration, Art. 2, § 2.2, Art. 4, § 4.2; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a, B.2.f. The Master Trust also requires that the beneficiary for each trust sub-account be disabled as defined in section 1614(a)(3) of the Act. See Declaration, Art. 2, § 2.1; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a. Finally, the Declaration contains language stating that, to the extent property is not retained by the Master Trust, the property in a beneficiary’s sub-account shall be distributed to each state in which the beneficiary received government assistance based on each state’s proportionate share and gives the states priority as first payee. See Declaration, Art. 6, § 6.2; Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g.

CONCLUSION

The Master Trust does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. As written, the Master Trust does not definitively show that it was established by and is managed by a nonprofit association and does not show that trust sub-accounts are established solely for the benefit of each beneficiary. The Declaration contains provisions sufficient to satisfy the other requirements under section 1917(d)(4)(C).

M. PS 16-156 Resource Status of a Trust Governed by Florida Law, Amended

Date: July 1, 2016

1. Syllabus

The Family Network on Disabilities National Pooled Trust (Master Trust), as amended on May 5, 2016, complies with the requirements for exception under section 1917(d)(4)(C) of the Social Security Act (Act) and the relevant provisions of the Program Operations Manual System (POMS).

2. Opinion

QUESTION

You have asked whether the amended Family Network on Disabilities National Pooled Trust (Master 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 amended Master Trust complies 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 a memorandum dated March 7, 2016, our office advised that the Master Trust established by the Family Network on Disabilities of Florida, Inc. (FND) did 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. See POMS PS 01825.011 (PS 16-091)1 . We explained that, as written, the trust sub-accounts were not established for the sole benefit of each beneficiary. See id. In particular, Article VII allowed the Trustee, under certain conditions, to terminate a beneficiary’s trust sub-account prior to the beneficiary’s death and use the sub-account trust property to benefit other individuals during the beneficiary’s lifetime. See id. Also, Article VIII, section 8.4, contemplated potential use of sub-account trust property for the benefit of others because it permitted the Trustee to charge on a pro rata basis to trust sub-accounts legal costs associated with defending “any” trust sub-account. See id.

On May 5, 2016, FND amended the Master Trust to delete Article VII in its entirety. See Third Amendment to Declaration of Trust (Trust. Decl.). FND also amended Article VII, section 8.4, to read:

Costs and expenses of defending the Trust, or any Trust sub-account, including attorneys’ fees incurred prior to, during, or after trial, and on appeal, against any claim, demand, legal action, equitable action, suit, or proceeding may, in the sole discretion of the Trustee, be charged against the Trust sub-account established on behalf of the individual beneficiary that is affected by the action defended against. Any such costs, expenses, and fees shall not be apportioned on a pro rata basis to all Trust sub-accounts unless all sub-accounts are affected by the action defended against.

Third Amendment to Trust. Decl.

DISCUSSION

As discussed in the March 7, 2016 memorandum, to establish a pooled trust under section 1917(d)(4)(C), the accounts in the trust must be “established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)).”2 Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if the trust benefits no one but the individual, whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e. The trust, however, can provide for reasonable compensation to manage the trust, as well as reasonable legal costs rendered on behalf of the individual with regard to the trust. See POMS SI 01120.201.F.2.c.

The amended Master Trust complies with the requirement that the trust sub-accounts be established for the sole-benefit of the beneficiary. The Master Trust provides that separate trust sub-accounts shall be established and maintained for the sole benefit of each beneficiary. See Trust Decl., Art. VIII, § 8.1. Distributions of income or principal from a beneficiary’s trust sub-account shall be for supplemental care or the supplemental needs of the beneficiary. See Trust Decl., Art. V, § 5.1. Although Article VII previously allowed the Trustee under certain circumstances to terminate a beneficiary’s trust sub-account while the beneficiary was still living and use it to benefit other beneficiaries or disabled persons, see Second Amendment to Trust Decl.; Trust Decl., Art. VII; POMS PS 01825.011 (PS 16-091), the new amendment has deleted Article VII in its entirety. Similarly, amended Article VIII, section 8.4, no longer allows the Trustee to charge on a pro rata basis legal fees to all trust sub-accounts regardless of whether all trust sub-accounts are affected by the action defended against. Rather, the amendment only allows legal fees to be charged to a trust sub-account if the sub-account is affected by the action defended against. See Third Amendment to Trust Decl; POMS SI 01120.201.F.2.c (limiting legal costs to those rendered on behalf of the individual with regard to the trust).

CONCLUSION

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

N. PS 16-125 Does Settlement Solutions National Pooled Trust (Master Trust) comply with requirements for a pooled trust?

DATE: April 27, 2016

1. Syllabus

This Regional Chief Counsel opinion discusses whether the Settlement Solutions National Pooled Trust (Master Trust) established on August 12, 2009, complies with all the requirements for a pooled trust exception under section 1917(d)(4)(C) of the Social Security Act (Act). The RCC determined the Master Trust does not meet all the requirements for the pooled trust exception because the trust sub-accounts are not established for the sole benefit of each beneficiary.

2. Opinion

QUESTION

Whether the Settlement Solutions National Pooled Trust (Master 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 Master 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. As written, the trust sub-accounts are not established for the sole benefit of each beneficiary. The Master Trust contains proper language for the others requirements under section 1917(d)(4)(C).

BACKGROUND

On August 12, 2009, the National Non-Profit for Americans with Disabilities, Inc. (NAD), a non-profit corporation, established the Master Trust, a pooled trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit of beneficiaries under the Master Trust. See Declaration of Trust of NAD (Trust Decl.), preamble, Art. 2, § 2.1. The Master Trust provides that separate trust sub-accounts shall be established and maintained for the sole benefit of each beneficiary, but the Master Trust shall pool the trust sub-accounts for investment and management purposes. See Trust Decl., Art. 1, §§ 1.4, 1.5, 1.6, Art. 8, § 8.1. NAD is the “Trustee.” See Trust Decl., Art. 1, § 1.1, Art. 2, § 2.1. The Master Trust provides that the beneficiaries are disabled persons as defined in § 1614(a)(3) of the Act. See Trust Decl., Art. 1, § 1.4, Art. 9, § 9.5. A grantor establishes a trust sub-account for the sole benefit of a beneficiary with the assets of the beneficiary. See Trust Decl., Art. 1, §§ 1.3, 1.4, 1.5, 1.6; Joinder Agreement, Art. 2, § 2.01. The grantor establishing a trust sub-account on behalf of a beneficiary must be the beneficiary’s parents, grandparents, legal guardian, the beneficiary himself or herself, or someone acting on behalf of a court order. See Trust Decl., Art. 1, § 1.3.

The Master Trust provides that trust assets are not for the primary support of the beneficiaries and shall only be used for their supplemental care and/or supplemental needs. See Trust Decl., Art. 1, § 1.10, Art. 4, § 4.1, Art. 5, § 5.1, 5.2. The Trustee does not owe an obligation of support to any beneficiary; and beneficiaries do not have any right of entitlement to the trust corpus or income, except as the Trustee elects to disburse in its sole, complete, absolute, and unfettered discretion. See Trust Decl., Art. 5, § 5.1. The Master Trust also provides that no part of the Master Trust, neither principal nor income, can be anticipated, assigned, encumbered, or subject to attachment or control by any public or private creditor of any beneficiary. See Trust Decl., Art. 3. Distributions of income or principal from a beneficiary’s trust sub-account are within the sole and absolute discretion of the Trustee and shall be for supplemental care or the supplemental needs of the beneficiaries. See Trust Decl., Art. 3, Art. 5, § 5.1. The Master Trust states that it is irrevocable by grantors and beneficiaries. See Trust Decl., Art. 2, § 2.3, Art. 4, § 4.2.

The Trustee is entitled to reasonable compensation and to reimbursement of costs and expenses incurred in the management and/or administration of the Master Trust, including defending the Master Trust or any trust sub-account. See Trust Decl., Art. 8, § 8.4, Art. 9, §§ 9.1, 9.7. The costs and expenses may be apportioned on a pro rata basis to all sub-accounts or charged against only the affected sub-account. See Trust Decl., Art. 8, § 8.4, Art. 9, § 9.1; Joinder Agreement, Art. 2, § 2.06. The Trustee must maintain records on each trust sub-account and provide annual reports and financial statements to each beneficiary or his/her legal representative. See Trust Decl., Art. 8, §§ 8.1, 8.2.

Upon a beneficiary’s death, any amounts remaining in his or her trust sub-account will be deemed surplus trust property and the lesser of 5% or $5,000 will be retained by the Master Trust. See Trust Decl., Art. 6, § 6.1; Joinder Agreement, Art. 3; Addendum to Joinder Agreement. To the extent surplus trust property is not retained by the Master Trust, “such property must be distributed to each and every state in which the [b]eneficiary received government assistance in the form of Medicaid, to the extent of the total medical assistance paid by all of the states on the [b]eneficiary’s behalf during the [b]eneficiary’s lifetime.” Trust Decl., Art. 6, § 6.2; see Addendum to Joinder Agreement. Once the Medicaid programs are reimbursed, any balance greater than $1,000 will be distributed to the beneficiary’s estate. See Addendum to Joinder Agreement.

NAD’s main office is in Florida. The Master Trust provides that it shall be governed exclusively by, and interpreted exclusively in accordance with, the laws of the United States and the State of Florida. See Trust Decl., Art. 10, § 10.3; see also Joinder Agreement, Art. 5, § 5.05 (stating Joinder Agreement also is governed by the law of Florida and the United States). Also, any provision that “disqualifies a [b]eneficiary for government assistance” or any language that “causes this Trust to not qualify as a Trust under 42 U.S.C. 1396 p (d)(4)(C)” shall be considered void and the remainder of the Trust would continue undisturbed. Trust, Art. 10, § 10.4; see also Joinder Agreement, Art. 5, § 5.10 (stating invalidity or unenforceability to any provision of agreement shall not impair remainder of agreement).

DISCUSSION

Supplemental Security Income (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 (2015).[37] “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); see POMS SI 01120.010.B.

Generally, 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, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception

for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

  1. (i)  

    The trust is established and managed by a nonprofit association.

  2. (ii)  

    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.

  3. (iii)  

    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.

  4. (iv)  

    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 subchapter.

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

As written, the Master Trust does not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions because the trust sub-accounts are not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if it benefits no one but the individual whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a.

Generally, a trust is not for the sole benefit of an individual if the trust account:

(a) provides a benefit to another individual or entity during the individual’s lifetime; or

(b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e.

Although the Master Trust represents that the beneficiary sub-accounts are established for the sole benefit of each beneficiary, a close reading of the Master Trust reveals that certain provisions create contingent interests that could benefit third parties during the individual’s lifetime. The Master Trust permits the Trustee to charge the trust sub-accounts on a pro rata basis for legal costs and other expenses associated with defending “any” trust sub-account. See Trust. Decl., Art. 8, § 8.4, Art. 9, § 9.1; Joinder Agreement, Art. 2, § 2.06. The relevant POMS section, however, provides that only legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. See POMS SI 01120.201.F.2.c. Therefore, this provision contemplates the potential use of assets in a beneficiary’s sub-account for the benefit of others besides the beneficiary.

The Master Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating the entire Master Trust; however, for SSI purposes, a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Master Trust must meet the criteria in 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Master Trust severability clause does not nullify or sever the provisions discussed above that could benefit third parties. See POMS SI 01120.227.D.

The Master Trust complies with the remaining requirements in 1917(d)(4)(C) of Act and the POMS provisions implementing those requirements. First, NAD identifies itself as a non-profit organization and the Internal Revenue Service (IRS) lists it as a tax-exempt organization on its website.[38] See Trust Decl., Art. 2, § 2.1; Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.c; see also POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is not for profit); 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).

Second, the Master Trust consists of separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes. See Trust Decl., Art. 1, §§ 1.3, 1.4, 1.5, 1.6, Art. 8, § 8.1; Joinder Agreement, Art. 2, § 2.01; Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.d. The Master Trust also maintains records for each sub-account and provides an accounting for each beneficiary annually. See Trust Decl., Art. 8, §§ 8.1, 8.2; POMS SI 01120.203.B.2.d (providing the trust must be able to provide an accounting for each individual).

Third, the Master Trust requires that the grantor establishing a trust sub-account be the beneficiary’s parents, grandparents, legal guardian, the beneficiary himself or herself, or a person acting at the direction of a court order to execute a Joinder Agreement. See Trust Decl., Art. 1, § 1.3; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a, B.2.f. The Master Trust also requires that the beneficiary for each trust sub-account be disabled as defined in section 1614(a)(3) of the Act. See Trust Decl., Art. 1, § 1.4, Art. 9, § 9.5; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.b.

Finally, the Master Trust contains language stating that, to the extent property is not retained by the Master Trust, the property in a beneficiary’s sub-account shall be distributed to each state in which the beneficiary received Medicaid assistance based on each state’s proportionate share and gives the states priority as first payee. See Trust Decl., Art. 6, § 6.2; Addendum to Joinder Agreement; Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g.

CONCLUSION

The Master Trust does not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. As written, the trust sub-accounts are not established for the sole benefit of each beneficiary. The Master Trust contains acceptable language to satisfy the other requirements under section 1917(d)(4)(C).

O. PS 16-091 Resource Status of a Trust Governed by Florida Law

Date: March 7, 2016

1. Syllabus

In this opinion, the Regional Chief Counsel determined that the Family Network on Disabilities National Pooled Trust (Master Trust) does not comply with all the requirements for a pooled trust under section 1917(d)(4)(C) of the Social Security Act (Act). Specifically, the Master Trust violates the sole benefit requirement. The early termination of sub-accounts under the fiction “as though that beneficiary had died” creates the possibility that other individuals would benefit from the Master Trust during the beneficiary’s lifetime. Also, the Master Trust permits the Trustee to charge on a pro rata basis to trust sub-accounts legal costs associated with defending “any” trust sub-account. Although the Master Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating the entire Master Trust, for SSI purposes a null and void clause or savings clause does not cure an otherwise defective trust instrument.

2. Opinion

QUESTION

Whether the Family Network on Disabilities National Pooled Trust (Master 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 Master 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. As written, the trust sub-accounts are not established for the sole benefit of each beneficiary. The Master Trust contains proper language for the others requirements under section 1917(d)(4)(C).

BACKGROUND

On January 26, 1999, the Family Network on Disabilities of Florida, Inc. (FND), a non-profit corporation, established the Master Trust, a pooled trust pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) for the benefit of beneficiaries under the Master Trust. See Declaration of Trust of FND (Trust Decl.), Art. 1, § 1.1. The Master Trust provides that separate trust sub-accounts shall be established and maintained for the sole benefit of each beneficiary, but the Master Trust shall pool the trust sub-accounts for investment and management purposes. See Trust Decl., Art. VIII, § 8.1. FND is the “Trustee.” See Trust Decl., Art. II, § 2.1. A grantor is any person or entity who contributes money and/or property to the Master Trust. See Trust Decl., Art. II, § 2.3. The grantor establishing a trust sub-account on behalf of a beneficiary must be the beneficiary’s parents, grandparents, legal guardian, the beneficiary himself or herself, or someone acting on behalf of a court order directing the individual to execute a Joinder Agreement on behalf of the beneficiary. See Trust Decl., Art. II, § 2.3, Ex. C.

The Master Trust provides that trust assets are not for the primary support of the beneficiary and shall only be used for their supplemental care and/or supplemental needs. See Trust Decl., Art. III, § 3.1. The Trustee does not owe an obligation of support to any beneficiary and beneficiaries do not have any right of entitlement to the trust corpus or income, except as the Trustee elects to disburse in its sole, complete, absolute, and unfettered discretion. See Trust Decl., Art. III, § 3.1. The Master Trust also provides that no part of the Master Trust or any trust sub-account, neither principal nor income, can be subject to anticipation or assignment by any beneficiary or subject to attachment or control by any public or private creditor of any beneficiary. See Trust Decl., Art. III, § 3.2. Distributions of income or principal from a beneficiary’s trust sub-account are within the sole and absolute discretion of the Trustee and shall be for supplemental care or the supplemental needs of the beneficiary. See Trust Decl., Art. II, § 5.1. The Master Trust states that it is irrevocable by grantors and beneficiaries.[39] See Trust Decl., Art. IV, § 4.2.

The Trustee is entitled to reasonable compensation and to reimbursement of costs and expenses incurred in the management and/or administration of the Master Trust, including defending the Master Trust or any trust sub-account. See Trust Decl., Art. VIII, § 8.4, Art. IX, § 9.7. The Trustee maintains records on each trust sub-account and provides annual reports and financial statements to the beneficiary or his/her legal representative. See Trust Decl., Art. VIII, §§ 8.1, 8.2.

Upon a beneficiary’s death, any amounts remaining in his or her trust sub-account will be deemed surplus trust property and will be maintained by the Master Trust. See Trust Decl., Art. VI. Surplus trust property can be used: (a) for the direct or indirect benefit of other beneficiaries; (b) to add disabled persons who are indigent to the Master Trust as beneficiaries; or (c) to provide disabled persons with equipment, medication, or services. See Trust Decl., Art. VI. To the extent surplus trust property is not retained by the Master Trust, “such property shall be distributed to each state in which the [b]eneficiary received Medicaid assistance, based on each state’s proportionate share of the total Medicaid assistance paid by all the states on the [b]eneficiary’s behalf.” See Trust Decl., Art. VI; Amendment to Trust Decl.

The Master Trust also states that the Trustee cannot be expected to know how future developments in the law, including agency and judicial decisions, may affect the Master Trust or its sub-accounts. Thus, the Master Trust provides:

If the Trustee has reasonable cause to believe that the income or principal in any [t]rust sub-account maintained for any [b]eneficiary will be required to be used for the care of a [b]eneficiary that has been, or would otherwise be provided by a local, state, or the federal government, or an agency or department thereof, the Trustee may, in its sole and absolute discretion, terminate the affected [b]eneficiary’s [t]rust sub-account as though that [b]eneficiary had died and treat the property in the [t]rust sub-account according to the provisions above in Article VI.

Second Amendment to Trust Decl.

FND’s main office is in Florida. The Master Trust provides that it shall be governed exclusively by, and interpreted exclusively in accordance with, the laws of the United States and the State of Florida. See Trust Decl., Art. X, 10.3. Also, any provision that is “adjudged invalid or unenforceable under the laws of any place where the terms of the Declaration are to be performed or are sought to be enforced, shall be deemed inoperative without invalidating such provision elsewhere or any other provisions” of the Master Trust. See Trust, Art. X, 10.4.

DISCUSSION

Supplemental Security Income (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 (2015).[40] “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); see POMS SI 01120.010.B.

Generally, 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, the rules in section 1613(e) of the Act do not apply to trusts described in section 1917(d)(4) of the Act. See Act § 1613(e)(5); POMS SI 01120.201.A.1; POMS SI 01120.203.A. Trusts created in accordance with paragraphs (A) and (C) of section 1917(d)(4) are commonly known as Medicaid trust exceptions and consist of two types: Special Needs Trusts (paragraph (A)) and Pooled Trusts (paragraph (C)). See POMS SI 01120.203.A. To satisfy the exception for pooled trusts under section 1917(d)(4)(C), a trust must contain the assets of an individual who is disabled (as defined in section 1614(a)(3)) and meet the following conditions:

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); POMS SI 01120.203.B.2.a.

Even if a trust meets the requirements of a pooled trust under section 1917(d)(4)(C), SSA still must evaluate the trust under the instructions in POMS SI 01120.200 to determine if the trust is a countable resource. See POMS SI 01120.203.B.2.a, D.2. Trust principal is a countable resource if the individual (claimant, recipient, deemor) 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.

As written, the Master Trust does not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of Act and the implementing POMS provisions because the trust sub-accounts are not established solely for the benefit of each beneficiary. See Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. A trust is established for the sole benefit of the individual if the trust benefits no one but the individual whether at the time the trust is established or at any time during the individual’s lifetime. See POMS SI 01120.201.F.2.a. Generally, a trust is not for the sole benefit of an individual if the trust account: (a) provides a benefit to another individual or entity during the individual’s lifetime; or (b) allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity. See POMS SI 01120.203.B.2.e.

Although the Master Trust represents that the beneficiary sub-accounts are established for the sole benefit of each beneficiary, a close reading of the Master Trust reveals that certain provisions create contingent interests that could benefit third parties during the individual’s lifetime. Specifically, the Master Trust permits the Trustee to terminate a beneficiary’s trust sub-account “as though that [b]eneficiary had died” if the Trustee has reasonable cause to believe that the income or principal in the trust sub-account will be required to be used for the care of a beneficiary that has been, or would otherwise be provided by a local, state, or the federal government. See Second Amendment to Trust Decl. The Master Trust provides that trust property retained by the Master Trust following a beneficiary’s death could be used to benefit other beneficiaries or disabled persons. See Trust Decl., Art. VI. Thus, terminating a beneficiary’s trust sub-account under the fiction “as though that [b]eneficiary had died” would create the possibility that other individuals would benefit from the Master Trust during the beneficiary’s lifetime. See POMS SI 01120.203.B.2.e.

The Master Trust also permits the Trustee to charge on a pro rata basis to trust sub-accounts legal costs associated with defending “any” trust sub-account. See Trust. Decl., Art. VIII, § 8.4. The relevant POMS section, however, provides that only legal costs or services rendered “on behalf of the individual with regard to the trust” do not violate the sole benefit rule. See POMS SI 01120.201.F.2.c. Therefore, this provision also contemplates potential use of the trust for the benefit of others besides the beneficiary.

Although the Master Trust contains a severability clause for severing invalid or unenforceable provisions without invalidating the entire Master Trust, for SSI purposes a null and void clause or savings clause does not cure an otherwise defective trust instrument. See POMS SI 01120.227.D. To qualify for the pooled trust exception, the Master Trust must meet the criteria in 1917(d)(4)(C) without regard to its severability clause. See POMS SI 01120.227.D.1. Thus, the Master Trust severability clause does not nullify or severe the provisions discussed above that could benefit third parties. See POMS SI 01120.227.D.

The Master Trust complies with the remaining requirements in 1917(d)(4)(C) of Act and the POMS provisions implementing those requirements. FND identifies itself as a non-profit organization and the Internal Revenue Service (IRS) lists it as a tax-exempt organization on its website.[41] See Act § 1917(d)(4)(C)(i); POMS SI 01120.203.B.2.a; see also 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); POMS SI 01120.203.F (referring to the procedures in POMS SI 01130.689.E for determining if an organization is not for profit). The Master Trust consists of separate trust sub-accounts for each beneficiary that are pooled together for investment and management purposes. See Trust Decl., Art. VIII, § 8.1; Act § 1917(d)(4)(C)(ii); POMS SI 01120.203.B.2.a. The Master Trust maintains records for each sub-account and provides an accounting for each beneficiary annually. See POMS SI 01120.203.B.2.d (providing the trust must be able to provide an accounting for each individual). The Master Trust requires proof that the grantor establishing a trust sub-account be the beneficiary’s parents, grandparents, legal guardian, the beneficiary himself or herself, or a person acting at the direction of a court order to execute a Joinder Agreement. See Trust Decl., Ex. C; Act § 1917(d)(4)(C)(iii); POMS SI 01120.203.B.2.a, B.2.f. The Master Trust also requires that the beneficiary for each trust sub-account be disabled as defined in section 1614(a)(3) of the Act. See Trust Decl., Art. II, § 2.4; Act § 1917(d)(4)(C)(iii). The Master Trust contains language stating that, to the extent property is not retained by the Master Trust, the property “shall be distributed to each state in which the [b]eneficiary received Medicaid assistance” based on each State’s proportionate share. See Trust Decl., Art. VII, Amendment to Trust Decl.; Act § 1917(d)(4)(C)(iv); POMS SI 01120.203.B.2.g.

CONCLUSION

The Master Trust does not comply with the requirements for a pooled trust under section 1917(d)(4)(C) of the Act and the implementing POMS provisions. As written, the trust sub-accounts are not established for the sole benefit of each beneficiary. The Master Trust contains acceptable language to satisfy the other requirements under section 1917(d)(4)(C).

P. PS 12-011 Interest Held in a Florida Trust by a Supplemental Security Income Applicant and Effect of a Florida State Court Order Entered Nunc Pro Tunc and Purporting to Modify the Trust

DATE: November 3, 2011

1. SYLLABUS

This decision centers on the issue of the State approving modifications to an otherwise SSI countable trust that allowed the trust to meet the Federal SSI exceptions for trusts. The Regional Chief Counsel determined that the State court correctly modified the trust allowing it to meet Federal trust exceptions, but the State court had no authority under State law to issue a nunc pro tunc order. The trust only qualifies for exception retroactively from the date the court amended the trust language.

2. OPINION

QUESTION

You asked whether a Supplemental Security Income (SSI) applicant’s trust is irrevocable for SSI purposes. You also asked whether a Florida state court order binds the Social Security Administration (SSA), where the order purportedly modified the trust and operated nunc pro tunc, that is, effective as of the date the trust was created.

BACKGROUND

SSA found Joan (Applicant) entitled to SSI beginning in May 1986. In December 2007, SSA notified Applicant it was stopping her payments because it needed correct information about her name, address, and/or bank account.

Applicant’s father, James (Grantor), a resident of B~ County, Florida, executed his Last Will and Testament (Will) in January 1991. In his Will, Grantor devised one share of his estate to a trust for the benefit of Applicant (Will, Art. 2 ¶ E). Grantor designated Richard (Grantor’s son and Applicant’s brother) as the trustee. Grantor also directed the trustee to use the income and principal of the trust for Applicant’s “support and maintenance” (Will, Art. 2 ¶ E(1)). The Will did not expressly prohibit judicial modification (Order Granting Verified Petition to Reform Irrevocable Testamentary Trust (Order), ¶ K).

Grantor died in October 2004 (Order, ¶ A). Richard, as trustee, subsequently petitioned the Circuit Court for Broward County, Florida, to reform the trust (Order, Preamble). In support of his petition, Richard stated Applicant had been diagnosed with schizophrenia (Order, ¶ D). Richard also said Applicant received government assistance in the past, including SSI and Medicaid benefits; however, she was not receiving any government assistance at the time of the petition and would not qualify for government assistance if the trust remained as drafted (Order, ¶¶ E-F). Richard also submitted an affidavit from the drafter of the Will, who stated he was unaware that Applicant was disabled and had been receiving government assistance (Order, ¶ H). According to the drafter, if he had been aware of these facts, he would have recommended a special needs trust and drafted the Will to avoid interference with Applicant’s continued eligibility for government assistance (Order, ¶ H). Richard proposed to reform the trust as a “special needs trust” that would “[m]aintain the intention of the Grantor as to the disposition of the remaining trust assets.” (Order, ¶ I).

In an order dated May 18, 2011, the court found Richard, as trustee, was entitled to judicial modification of the trust under Florida law (Order, ¶ 1). The court replaced the provisions of Article 2, paragraph E, of the Will regarding the distributions of Applicant’s trust share with the modifications Richard had proposed in his petition (Reformed Trust, Preamble). The court modified the trust nunc pro tunc “as of [Grantor’s] date of death in October 2004” (Order, ¶ 3).

As modified by the court, the Will established a trust “to supplement [Applicant’s] needs only” (Reformed Trust, ¶ A). The modified trust is “not intended for [Applicant’s] primary support” (Reformed Trust, ¶ A). According to the terms of the trust, Applicant “has no entitlement to the income or corpus of this trust, except as my Trustee, in his complete, sole, absolute and unfettered discretion elects to disburse” (Reformed Trust, ¶ B). The trust also directs that “under no circumstances may [Applicant] compel distributions from this trust” (Reformed Trust, ¶ E). Additionally, “[d]istribution to or for the benefit of [Applicant] shall be limited so that [she] is not disqualified from receiving public benefits to which [she] is otherwise entitled” (Reformed Trust, ¶ D). Section L of the trust, titled “Trustee’s Authority to Terminate Trust,” provides that upon the death of Applicant or the trust’s earlier termination, the trust “shall be distributed in equal shares to [several remainder beneficiaries]” (Reformed Trust, ¶ L). The terms of the trust provide that it will be administered under Florida law (Reformed Trust, ¶ N).

Applicant’s brother and legal guardian, Jameson, applied on Applicant’s behalf for SSI on July 22, 2011. In the application, Jameson stated Applicant’s resources included a checking account containing $44,972.15. Jameson described this account as a “special needs trust account.” SSA denied Applicant’s application on July 29, 2011, because her resources were worth more than $2,000.00. On September 14, 2011, Applicant requested reconsideration.

DISCUSSION

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain eligibility requirements, including income and resource restrictions. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2011). [42] “Resources” include cash, 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).

Trusts may be countable as an individual’s resource for SSI purposes. See Act, § 1613(e). Even if a trust is established with the assets only of a third-party, the trust will be countable as an individual’s resource if he or she “has legal authority to revoke or terminate the trust and then use the funds to meet his food or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance under the terms of the trust.” Program Operations Manual System (POMS) SI 01120.200.D.1.a. [43] “Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource.” Id.

Conversely, “[i]f an individual does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his/her own support and maintenance, the trust principal is not the individual’s resource for SSI purposes.” [44] See POMS SI 01120.200.D.2 (emphasis in the original). Generally, one determining whether a beneficiary can revoke, terminate, or direct the use of a trust should not impute to the beneficiary a trustee’s discretion to use or direct the use of the trust. See POMS SI 01120.200.D.1.b (“While a trustee may have discretion to use the trust principal for the benefit of the beneficiary, the trustee should be considered a third party and not an agent of the beneficiary, i.e., the actions of the trustee are not the actions of the beneficiary, unless the trust specifically states otherwise.”). “If a trust is irrevocable by its terms and under State law and cannot be used by an individual for support and maintenance . . . it is not a resource.” Id. (emphasis in the original).

You asked whether the trust is an irrevocable trust for the purposes of SSI. To answer this question, we first address whether Florida law permitted the court to modify the trust in 2011. Then, we address whether Applicant can revoke the modified trust.

The governing law section of Florida’s Trust Code states in pertinent part: The meaning and effect of the terms of a trust are determined by: (1) The law of the jurisdiction designated in the terms of the trust, provided there is a sufficient nexus to the designated jurisdiction at the time of the creation of the trust or during the trust administration, including, but not limited to, the location of real property held by the trust or the residence or location of an office of the settlor, trustee, or any beneficiary. . . . (2) In the absence of a controlling designation in the terms of the trust, the law of the jurisdiction where the settlor resides at the time the trust is first created. Fla. Stat. Ann. § 736.0107 (West 2011); [45] see also Fla. Stat. Ann. § 736.0202 (stating Florida courts have jurisdiction over trustees and beneficiaries of a trust having its principal place of administration in Florida). Grantor resided in Florida when he executed the Will that contained the original terms of the trust (Will, Preamble). Applicant, the beneficiary of the trust, resides in Florida (Order, ¶ D), thereby creating a sufficient nexus to Florida. Therefore, we look to Florida law to determine whether the circuit court had the authority to modify the trust and whether the trust as modified by the court, is revocable.

The court found the trustee was entitled to judicial modification of the trust under Florida Statute §§ 736.04113 or 736.04115 (Order, ¶ 1). These sections permit a court to modify a trust created by a deceased settlor when it meets certain conditions. See Fla. Stat. Ann. §§ 736.0103(15)-(16), 736.04113(1), 736.04115(1), 736.0601; Robinson v. Robinson, 805 So. 2d 94, 95 (Fla. Dist. Ct. App. 2002).

Under Florida Statute § 736.04113, a court may modify the terms of a trust created by a deceased settlor upon the application of a trustee or any qualified beneficiary where, “[b]ecause of circumstances not anticipated by the settler, compliance with the terms of the trust would defeat or substantially impair accomplishing the material purpose of the trust.” See Fla. Stat. Ann. § 736.04113(1)(b). A court modifying a trust under this section must consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and any extrinsic evidence relevant to the proposed modification. See Fla. Stat. Ann. § 736.04113(3)(a).

We believe the court properly complied with Fla. Stat. Ann. § 736.04113 in granting Richard’s petition to modify the trust. Richard was the trustee, and the court modified the trust upon his petition (Order, Preamble) because compliance with the terms of the trust would defeat or substantially impair accomplishing the material purpose of the trust (Order, ¶ 1).

The material purpose of the trust “generally requires some showing of a particular concern or objective on the part of the settlor, such as concern with regard to a beneficiary’s management skills, judgment, or level of maturity.” Restatement (Third) of Trusts, § 35 (2003). “Sometimes . . . the very nature or design of a trust suggests its protective nature . . . .” Id. The Will directed the trustee to use the trust “for the support and maintenance of [Applicant] . . . taking into consideration her standard of living at the time of my death and any other sources of income of [Applicant]” (Will, Art. 2 ¶ E). See Fla. Stat. Ann. § 736.0404 (“A trust and its terms must be for the benefit of its beneficiaries.”). Applicant has been diagnosed with schizophrenia (Order, ¶ D). Given the terms of the trust and Applicant’s schizophrenia, we believe the court could properly find the trust’s material purpose was to protect and maximize Applicant’s means of support, including her eligibility for government assistance.

The available information does not indicate Grantor anticipated the trust would affect Applicant’s eligibility for SSI. Richard submitted an affidavit from the drafter of the Will showing he had been unaware that Applicant received government assistance and, if he had been aware, he would have drafted the Will to avoid jeopardizing Applicant’s continued eligibility for government assistance (Order, ¶ H).

We believe the court could reasonably have found that compliance with the original terms of this trust would defeat or substantially impair the material purpose of the trust. Richard stated Applicant used to receive government assistance, including SSI and Medicaid benefits; however, she was not receiving any government assistance at the time of the petition and would not qualify for government assistance if the trust remained as it was drafted (Order, ¶¶ E-F). Therefore, the court could find that compliance with the original trust would diminish Applicant’s means of support, substantially impairing the material purpose of the trust. We believe the court properly elected to modify the terms of the trust under Florida Statute § 736.04113.

Because we believe the court could properly modify the trust under Florida Statute § 736.04113, we believe its ability to modify the trust under Florida Statute § 736.04115 is immaterial. Nevertheless, we believe the court could modify the trust also under Florida Statute § 736.04115. [46] A court may modify a trust under this section “if compliance with the terms of a trust is not in the best interests of the beneficiaries.” Fla. Stat. Ann. § 736.04115(1). We believe the court could properly determine that compliance with the terms of the trust was not in Applicant’s best interests because it would jeopardize her eligibility for government assistance (Order, ¶ F). Therefore, we believe the court could properly modify the trust under this section.

We also believe the modified trust is irrevocable with respect to Applicant. “The revocability of a trust and the ability to direct the use of the trust principal depend on the terms of the trust agreement and/or on State law.” POMS SI 01120.200.D.2. “[A] valid trust cannot be altered, amended, or revoked except by the exercise of a power identified in the trust.” Roberts v. Sarros, 920 So. 2d 193, 195 (Fla. Dist. Ct. App. 2006) (quoting L’Argent v. Barnett Bank, 730 So. 2d 395, 397 (Fla. Dist. Ct. App. 1999)). In determining whether the trust identifies a power to alter, amend, or revoke the trust, “[t]he polestar of trust . . . interpretation is the settlor’s intent.” Bryan v. Dethlefs, 959 So. 2d 314, 317 (Fla. Dist. Ct. App 2007); accord Fla. Stat. Ann. § 736.1101(1) (“The intent of the settlor as expressed in the terms of the trust controls the legal effect of the dispositions made in the trust.”). “In determining the settlors’ intent, the court should not resort to isolated words and phrases; instead, the court should construe the instrument as a whole, taking into account the general dispositional scheme.” R~, 920 So. 2d at 195 (internal quotation marks omitted); see Littell v. Law Firm of Trinkle, Moody, Swanson, Byrd & Colton, 345 F. App’x 415, 419 (11th Cir. 2009); B~, 959 So. 2d at 317; L~, 730 So. 2d at 397. When the terms of a trust are clear and unambiguous, “the settlors’ intent as expressed in the trust controls and the court cannot resort to extrinsic evidence.” [47] L~, 345 F. App’x at 419; see B~, 959 So. 2d at 317 n.2; L~, 730 So. 2d at 397. If a provision of a trust is unenforceable, a court may sever the unenforceable provision and preserve the trust as a whole, provided the severance is compatible with the settler’s intent. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996).

We believe that the terms of the modified trust, when construed as a whole, show that Applicant could not revoke it. See R~, 920 So. 2d at 195. First, the trust does not appear to grant Applicant any power to amend, modify, or revoke the trust. See id. (“‘[A] valid trust cannot be altered, amended, or revoked except by the exercise of a power identified in the trust.’” (quoting L~, 730 So. 2d at 397)). Rather, the trust states that Applicant, as beneficiary of the trust, “has no entitlement to the income or corpus of this trust, except as my Trustee in his complete, sole, absolute and unfettered discretion elects to disburse” (Reformed Trust, ¶ B). In this regard, the trust permits the trustee to “act unreasonably and arbitrarily as [Grantor] could do [him]self if living and in control of these funds” (Reformed Trust, ¶ B). One should not impute to Applicant the trustee’s ability to use or direct the use of the trust because the trustee, Richard, is not Applicant’s agent. See POMS SI 01120.200.D.1.

The trust also contains a spendthrift provision that states “under no circumstances may [Applicant] compel distributions from this trust” (Reformed Trust, ¶ E). Further, the modified trust does not direct any mandatory periodic payments and states Applicant has no right to direct the distribution of any part of the Trust (Reformed Trust, ¶¶ B, E). See POMS SI 01120.200.D, E.1. Nothing in the modified trust grants Applicant the ability to control her trust share, revoke her trust share, or sell her income from her trust share (Reformed Trust). See Fla. Stat. Ann. § 736.0103(15); L~, 730 So. 2d at 397; Fla. Nat’l Bank of Palm Beach Cty. v. Genova, 460 So. 2d 895, 897 (Fla. 1984).

Because the trust instrument after the 2011 modification confirms Grantor’s intent to make the trust irrevocable by Applicant, we believe the modified trust is irrevocable with respect to Applicant. See L~, 345 F. App’x at 419; B~, 959 So. 2d at 317 n.2; R~, 920 So. 2d at 195; L~, 730 So. 2d at 397.

Although the modified trust is irrevocable, the court’s order that modified the trust did not have a retroactive effect. The court stated the modified trust was effective nunc pro tunc, meaning the court intended to modify the trust effective from the date of Grantor’s death, October XX, 2004 (Order, ¶ 3). Although we believe the court's order modified the trust as of the date of the court order, we do not believe the court had the authority under Florida law to issue an order modifying the trust effective as of the date the trust was originally created.

Nunc pro tunc is a Latin term meaning “now for then.” Becker v. King, 307 So. 2d 855, 859 (Fla. Dist. Ct. App. 1975). “When applied to the entry of a legal order, nunc [pro tunc] normally refers, not to a new . . . decision, but to the trial judge’s previous action of which there is not a sufficient record.” Whack v. Seminole Memorial Hosp., 456 So. 2d 561, 563-64 (Fla. Dist. Ct. App. 1984). For example, an order may be entered nunc pro tunc to correct clerical errors. See Wells v. State, 796 So. 2d 1276, 1277 (Fla. Dist. Ct. App. 2001) (permitting a nunc pro tunc order to add “Jr.” to a name recorded on an earlier judgment). “A nunc pro tunc order is also used to supply an omission in the record of an action previously done but omitted through inadvertence or mistake.” Luhrs v. State, 394 So. 2d 137, 138 (Fla. Dist. Ct. App. 1981). In such a case, “[t]he later [nunc pro tunc] record-making act constitutes but later evidence of the earlier effectual act.” Briseno v. Perry, 417 So. 2d 813, 814 (Fla. Dist. Ct. App. 1982).

Thus, “[a] nunc pro tunc order can relate back only to supply a record of something actually done or determined at the earlier time.” Wally v. Fla. Game & Fresh Water Fish Comm’n, 501 So. 2d 671, 673 (Fla. Dist. Ct. App. 1987) (citing Riha v. Harding, 369 So. 2d 404 (Fla. Dist. Ct. App. 1979)). “[W]here the court has wholly omitted an order, which it might or ought to have made, it cannot afterward be entered nunc pro tunc.” Nichols v. Walton, 90 So. 157, 386 (Fla. 1921). Accordingly, “where an order does not merely correct clerical errors or omissions, but actually modifies the substance of a prior ruling or of itself constitutes a ruling not previously made in fact, it should not be given retrospective effect.” De Baun v. Michael, 333 So. 2d 106, 108 (Fla. Dist. Ct. App. 1976).

In this case, we do not believe the court had the authority to enter its order nunc pro tunc. The court did not issue its order to correct a clerical error. See W~, 796 So. 2d at 1277. The court also did not issue its order to “supply a record of something actually done or determined.” W~, 501 So. 2d at 673. Rather, the court attempted to retroactively structure the trust so that compliance with it would be in Applicant’s best interests or as the drafter “would have drafted the trust,” if he had been aware of Applicant’s government assistance (Order, ¶ H). The drafter’s affidavit that he would have drafted the trust differently further shows that the court’s modification of the trust was not “suppl[ing] a record of something actually done or determined.” W~, 501 So. 2d at 673. Moreover, the information provided does not show any previously entered judgments regarding the Will, further suggesting that the court’s order “itself constitutes a ruling not previously made in fact.” D~, 333 So. 2d at 108. Therefore, the court could not enter the order nunc pro tunc, and SSA should not give the order retroactive effect. See id.

We also believe the relevant sections of the Florida Trust Code do not permit the court to modify the trust retroactively. The court determined Richard, as trustee, was entitled to “judicial modification of a trust under Florida Statute 736.04113 or 736.04115.” Unlike other sections of the Florida Trust Code, the sections cited by the court do not contain any provisions authorizing it to modify the trust retroactively. Compare Fla. Stat. Ann. §§ 736.04113(2), 736.04113(5), with Fla. Stat. Ann. § 736.0416 (permitting court modifying trust to achieve settlor’s tax objectives to give the modification “retroactive effect”).

CONCLUSION

The trust is a third-party irrevocable trust since its modification in May 2011. Additionally, we believe the State court did not have the authority under Florida law to enter its order nunc pro tunc. Therefore, SSA is not bound by the court's order to the extent the order attempted to modify the trust retroactively, and SSA should consider the trust modified only as of the date the court entered its order, May 18, 2011.

 

Q. PS 07-087 Effect of Trust as Resource for SSI Eligibility Purposes - Florida Number Holder - Mary , SSN ~

DATE: March 12, 2007

1. SYLLABUS

Note: This opinion is only valid for trusts created prior to 1/1/00.

This opinion discusses a trust agreement executed in 1966, and an Amendment executed in 1974, that established a trust for an individual SSI beneficiary. The Amendment directed the trustees (the beneficiary's parents) to purchase a $100,000 annuity contract to provide monthly payments during the beneficiary's life. While a declaration of trust annuity was executed in 1981, an annuity has not been purchased as directed in the trust. The trust provides that the trustees retain sole judgment over disbursements and names contingent beneficiaries. Under Florida law, the beneficiary does not have the legal authority to revoke the trust or direct the trustees to use the principal for her support. Since the trust is irrevocable and the beneficiary cannot direct the use of its contents, the trust is not a resource. Moreover, since the trustees never carried out the provision of the trust to establish an annuity, the beneficiary cannot anticipate, assign, or sell the right to future payments. Until some action is taken to provide for regular, anticipated payments, the prospective future payments are not a resource to the beneficiary.

2. OPINION

QUESTION

You asked whether a trust annuity arrangement is a countable resource for Supplemental Security Income (SSI) purposes.

ANSWER

For the reasons stated below, we believe that the trust annuity arrangement in question is not a resource for SSI purposes.

BACKGROUND

Nathanial (Nathaniel) and Grace (Grace) were the grandparents of number holder Mary (NH). On October 16, 1966, and November 16, 1966, Nathaniel and Grace, respectively, created separate trust agreements. Neither of the original trust agreements is available. However, the file does contain a document entitled "First Amendment to Trust Agreement" (Amendment), dated March 12, 1974, and executed by Nathaniel. For the most part, this document allocated the trust principal to pay the legal obligations of Nathaniel's estate following his death and to provide for Grace, should she survive him. With respect to NH, the Amendment directed the trustees, William and Dorothy, NH's parents, to purchase a $100,000.00 annuity contract for NH's benefit to provide monthly payments during NH's life. The Amendment states that the trust shall be governed by the laws of the State of Florida.

Subsequently, NH's parents executed a "Declaration of Trust Annuity, Annuity for [NH]" (Trust Annuity Arrangement) dated December 7, 1981. This document states:

The assets comprising the corpus of this Trust shall be held for the benefit of [NH] under the described annuity arrangement. Annuity payments shall become payable to and for her benefit on a deferred basis commencing on the 15th day of January 1989. Prior to that date income earned on the Trust assets shall be accumulated and reinvested, subject to the authority of the Trustees, however, in the event of demonstrated need or emergency, in their sole judgment and discretion, to pay funds to or for the benefit of [NH]. Such payments may be made as the Trustees determine are necessary and proper for her care, maintenance and support.

The Trust Annuity Arrangement states the trust and the rights of the parties to the trust are governed by laws of the State of Florida. The document also named contingent beneficiaries, NH's two sisters - Nancy and Susan, who were to be paid the remaining balance of the trust fund in the event of NH's death. It does not appear that the trustees ever actually purchased the annuity contract and at any rate, NH never received the monthly annuity payments that were to commence in January 1989.

During 2005, NH received $1,023.31 in payments from the trust for automobile insurance premiums, renter's and property insurance premiums, automobile brake repair, and other automobile related expenses. NH has never received any annuity payments from the trust. The trust's investment account is held at Wachovia Securities, and a statement for the period ending July 31, 2006, shows the value of the trust's Wachovia Securities account to be $132,073.70.

DISCUSSION

The Social Security Act provides SSI eligibility for aged, blind, or disabled individuals who meet certain income and resource limitations. See Social Security Act (Act) '1611(a), 42 U.S.C. '1382(a). A resource is cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for her support or maintenance. 20 C.F.R. ' 416.1201(a) (2006). If the individual has the right, authority or power to liquidate property or her share in the property, it is considered a resource. 20 C.F.R. ' 416.1201(a)(1). Liquid resources are resources in the form of cash or other property that can be converted to cash within 20 days. 20 C.F.R. ' 416.1201(b). 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).

Generally, if trust principal is available to the trust beneficiary, it will be considered a resource to her for purposes of determining her SSI eligibility. See Act, ' 1613(e), 42 U.S.C. ' 1382b; 20 C.F.R. ' 416.1201. Interpretive guidelines in the Programs Operations Manual System (POMS) further discuss the meaning of resource. With respect to trust instruments established prior to the year 2000, the POMS provides that if the individual has the legal authority to revoke the trust and use the funds to meet her food, clothing or shelter needs, or if the individual can direct the use of the trust principal for her support and maintenance under the terms of the trust, then the trust principal is a resource for SSI purposes. POMS SI 01120.200D.1.a. However, if the individual does not have the legal authority to revoke the trust or direct the use of the trust assets for her own support and maintenance, then the trust principal is not the individual's resource for SSI purposes. POMS SI 01120.200D.2. The revocability of a trust and the ability to use the trust principal is determined by the terms of the trust and/or by State law. POMS SI 01120.200D.2.

In the present case, the Amendment and the Trust Annuity Arrangement state that the trust and the rights of the parties to the trust are governed by Florida law. Under Florida law, NH does not have the legal authority to revoke the trust and use the trust principal for her support; nor does she have the right to direct the use of the trust principal. Neither the trust annuity instrument itself (Amendment or Trust Annuity Arrangement), nor Florida law provides her with this option. See L'Argent v. Barnett Bank, N.A., 730 So.2d 395, 396 (Fla. Dist. Ct. App. 1999) (once created, valid trust cannot be altered, amended, or revoked except by exercise of power identified in trust); Watson v. St. Petersburg Bank & Trust Co., 146 So.2d 383, 386 (Fla. Dist. Ct. App. 1962) (in absence of express directions to contrary, power to revoke is personal to trustor when reserved by him); Siegel v. Novak, 920 So.2d 89, 94 (Fla. Dist. Ct. App. 2006) (central characteristic of a "revocable trust" is that the settlor has the right to recall or end the trust at any time, and thereby regain absolute ownership of the trust property); see also FLA. STAT. ' 733.707(3)(e) (2006) ("right of revocation" defined).

Here, it appears that the settlor, Nathaniel, retained the right of revocation of the trust. This is evidenced in his March 12, 1974, Amendment, in which he directed that the trust principal be used to pay the legal obligations of his estate and to care for Grace should she survive him. See FLA. STAT. ' 733.817(5)(h)(2), (3) (2006) (discussing right of revocation held by decedent settlor to allocate revocable trust to pay death taxes); Bank of Palm Beach County v. Genova, 460 So. 2d 895, 897 (Fla. 1984) ("If the settlor reserves the power to revoke the trust but does not specify any mode of revocation, the power can be exercised in any manner which sufficiently manifests the intention of the settlor to revoke the trust. Any definitive manifestation by the settlor of his intention that the trust should be forthwith revoked is sufficient"). In the Amendment, Nathaniel provided for NH by instructing the trustees to purchase a $100,000.00 trust annuity contract on her behalf. At no time did NH have any right to revoke the trust, nor any right to the principal in the trust account. Evidence of NH's inability to revoke the trust and use the principal for her benefit is further emphasized by the Trust Annuity Arrangement's provision that "[i]n the event of the death of [NH] before the Trust fund is totally distributed, the remaining balance of the Trust Fund shall be distributed in equal shares to Nancy . . . and Susan ." Thus, the Amendment and the Trust Annuity Arrangement make it clear that NH would have no right to the trust principal beyond receiving monthly annuity payments. Her sisters' interest in receiving the balance of the Trust principal following NH's death precludes NH from having any authority to revoke the trust and use the principal for her benefit.

The POMS further states that if a trust provides for mandatory disbursements to the beneficiary and the beneficiary is not prohibited from anticipating, assigning, or selling the right to future payments, the current value of these payments may be a resource to the beneficiary. POMS SI 01120.200D.1.a. In the present case, the Trust Annuity Arrangement did provide that "Annuity payments shall become payable to or for [NH's] benefit on a deferred basis commencing on the 15th day of January 1989." However, the trustees never carried out this provision of the Trust Annuity Arrangement, and thus NH has never received monthly annuity payments. Until the trustees take the affirmative step of purchasing an annuity contract as they were directed to do under Nathaniel's 1974 Amendment, NH cannot anticipate, assign, or sell the right to any such future payments, and there is no current value of any such payments to count as a resource to NH. See POMS SI 01120.200D.1.a. Although it seems likely that NH could sue to have this provision of the Trust Annuity Arrangement enforced, see Davis v. Rex, 876 So. 2d 609, 613 (Fla. Dist. Ct. App. 2004); Popp ex rel. Estate of Davis v. Rex, 916 So. 2d 954, 958 (Fla. App. 2005) (trial court could reform trust to carry out settlor's intent), until some action is taken to provide for regular, anticipated payments, we do not believe these prospective future payments can be counted as a resource to NH.

CONCLUSION

For the foregoing reasons, we believe that the trust in question is not a countable resource to NH for the purpose of determining eligibility for SSI.

 

R. PS 06-043 Effect of Null and Void Clause in Special Needs Trust, Florida Beneficiary - Austin

DATE: January 13, 2006

1. SYLLABUS

This opinion addresses whether or not the Special Needs Trust (SNT) in question is a countable resource for SSI purposes. To be excluded from resource counting, a SNT must:
1) contain the assets of a disabled individual under age 65,
2) be established for the benefit of the individual by a parent, grandparent, legal guardian or a court, and
3) provide that the State will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan. In this case, the SNT appears to satisfy the criteria to meet the SNT exception, except that the trust could be terminated and the assets distributed to the remainder beneficiaries during the claimant's lifetime. This would prevent the trust from being an excludable resource; however, the trust also stipulates that any provision of the trust that prevents compliance with the SNT exception is null and void. Florida law allows the null and void clause to override the provisions that might allow disbursements to remainder beneficiaries during the claimants lifetime, thus the SNT is not a countable resource.

2. OPINION

You asked whether a Special Needs Trust (SNT) established for SSI beneficiary Austin (Claimant) would be a countable resource. You stated that the trust in question appeared to satisfy all the criteria to meet the SNT exception to resource counting, except that the trust could be terminated and the assets distributed to the remainder beneficiaries during Claimant's lifetime, which might prevent the trust from meeting the requirement that trust be for the benefit of the disabled individual. However, the trust in question also stipulated that any provision of the trust that prevented compliance with the SNT exception would be null and void. Your specific question, therefore, was whether Florida law would give this null and void clause effect, thus allowing the trust to satisfy the exception to resource counting. For the reasons explained below, we believe Claimant's SNT would not be a countable resource.

BACKGROUND

Generally, trusts established with the assets of an individual will be considered resources for Supplemental Security Income (SSI) purposes. See Section 1613(e) of the Social Security Act (the Act) (42 U.S.C. 1382b(e)). However, the statute provides certain exceptions. Section 1613(e)(5) of the Social Security Act (the Act) (42 U.S.C. 1382b(e)(5)) excludes the "Medicaid payback trusts" incorporated by reference from sections 1917(d)(4)(A) and (C) of the Social Security Act (the Act) (42 U.S.C. 1396p(d)(4)(A) and (C)), which are part of Title XIX, "Grants to States for Medical Assistance Programs." Similarly, section 1612(a)(2)(G) of the Act (42 U.S.C. 1382a(a)(2)(G)) includes income from a trust as defined in 1613(e), which in turn incorporates the Medicaid payback trust exceptions.

The first of the two Medicaid payback exceptions is the SNT, which is at issue here; and the second, the Pooled Trust. The statutory requirements for resource exemption for an SNT are that the trust must be 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 subchapter." 42 U.S.C. 1396p(d)(4)(A).

On July 27, 2005, an SNT was established for Claimant. The Order establishing the SNT states as its first finding, "It is in the best interests of [Claimant] to be eligible for Social Security and Medicaid benefits." The Order's first direction is as follows: "The Court hereby approves of the establishing of the attached Special Needs Trust pursuant to Florida and Federal Medicaid Law under 42 U.S.C. 1396 (p) (d) (4) (a) . . . ." The introductory paragraph of the Special Needs Trust Agreement (Trust) states, "This Trust is written pursuant to 42 U.S.C. § 1396(d)(4)(A) [sic] . . . ." The Agreement further states, "[I]t is expressly intended that this Trust will provide benefits to supplement those which may otherwise be available to [Claimant] . . . and also satisfy the requirements of Title 42 of the U.S.C. § 1396p(d)(4)(A)." Trust Article 1.2.1. The "Intention" article states, "The purpose of this Trust is to permit the use of trust assets to supplement, and not to supplant, impair or diminish any benefits or assistance of any Federal, State, or other governmental entity . . . . " This article further states, "All provisions of this Trust shall be interpreted to qualify this trust under the provisions of 42 U.S.C. § 1396p(d)(4)(A). Any provision of this Trust which may prevent this Trust from satisfying full compliance with 42 U.S.C. § 1396p(d)(4)(A) shall be null and void." Trust Article 1.2.3.

During Claimant's lifetime, the Trustee has "absolute and unfettered discretion" to distribute from the principle or income of the Trust, or both, such amounts as the Trustee deems reasonable or advisable. Trust Article 2.1. Claimant has no right to direct a distribution. Trust Article 2.2.3. The Trustee is to distribute amounts for Claimant's "Special Needs," defined as the requisites for maintaining Claimant's health, safety, and welfare when such requisites are not provided by any other sources, including government agencies. Trust Articles 2.2.1, 2.3.1. Neither the Grantor, Trustee, nor Beneficiary may revoke the Trust. Trust Article 5.1.1.

Upon Claimant's death "any assets remaining in the Trust shall first be used to reimburse the Department of Medical Assistance and Health Services of the State of Florida for medical assistance paid on behalf of [Claimant] during his lifetime, as consistent with federal and state law." Trust Article 2.6.1.1. However, the Trustee may deplete the Trust corpus prior to Claimant's death. In doing so, the Trustee is directed to give "preference to the interests of [Claimant] while simultaneously considering the interests of the Remainder Beneficiary(ies)." Trust Article 2.3.1. Furthermore, the Trustee has the option to terminate the Trust during Claimant's lifetime if the amount thereof does not warrant the cost of continuing said trust or if its administration would be otherwise impractical. Upon such termination, Trustee shall pay the principal and any accumulated or undistributed income of such trust share to the Remainder Beneficiary(ies) in the proportions to which they would be entitled to receive distributions upon the death of [Claimant] . . . ."

Trust Article 5.6.

Analysis

As explained above, the statute provides certain exceptions to the general rule that trusts created with the assets of an individual are countable as resources of the individual. Among these exceptions are the "Medicaid trusts," or "Medicaid payback trusts," so called because they are designed to give state Medicaid plans a lien on the trust as first payee upon the death of the beneficiary. The lien is not enforced during the beneficiary's lifetime. See generally POMS SI 01120.203. The SNT is such a trust and has the following requirements:

  1. (1) 

    it must be established for a disabled individual under age 65;

  2. (2) 

    it must be established for the benefit of the disabled individual;

  3. (3) 

    it must be established by the disabled individual's parent(s), grandparent(s), legal guardian(s), or a court; and

  4. (4) 

    it must contain specific language that provides for Medicaid reimbursement upon the death of the disabled individual.

See POMS SI 01120.203(B)(1)(a-f). You advised us that the Trust appeared to satisfy all these requirements, with the possible exception of (2) above, due to the power of the Trustee to terminate the Trust and distribute assets to remainder beneficiaries. Based on your question to us, we presume the facts of Claimant's situation meet the other requirements; that is, that Claimant is under age 65 and is disabled. The Trust is established by a court, therefore satisfying (3) above. We note that Keith is both the guardian and trustee, and that the grantor is Claimant himself. Trust Declaration by the Grantor & Acceptance by the Trustee. Florida law allows a guardian to act as trustee. See § Fla.Stat. §774.441(2). We do not address here the nature of the property transferred or the relationship of Mr. C~ to Claimant. Indeed, a factual analysis of Claimant's case would not address your concern, since you indicated this opinion would be applied to other similar cases of SNT's in Florida. Therefore, we only address here whether the Trust on its face meets the requirements for the SNT exception to resource and income counting.

The Trust contains the necessary specific language that provides for Medicaid reimbursement upon the death of the disabled individual. Trust Article 2.6.1.1. However, as you note, the Trust may also benefit others, thus potentially defeating requirement (2). This could have the effect of depleting the Trust, thus limiting the capacity of the Trust to pay back Medicaid fully in the event of Claimant's death. However, the Trust also contains the "null and void clause,” Trust Article 1.2.3, which, if effective, could remove the offending clauses. We first address whether the null and void clauses might be needed at all to satisfy the exemption requirements. We then address whether the null and void clause would be effective under Florida law. Finally, we address whether the Trust would remain viable if the null and void clause were invoked and the offending clauses removed.

Two articles are off concern. The Trustee has the option to terminate the Trust during Claimant's lifetime if the amount thereof does not warrant the cost of continuing said trust or if its administration would be otherwise impractical. Upon such termination, Trustee shall pay the principal and any accumulated or undistributed income of such trust share to the Remainder Beneficiary(ies) in the proportions to which they would be entitled to receive distributions upon the death of [Claimant] . . . .

Trust Article 5.6. If, for example, the trustee terminated the Trust shortly before Claimant died, the Medicaid payback provision would be defeated In addition, the Trustee may deplete the Trust corpus prior to Claimant's death. In doing so, the Trustee is directed to give "preference to the interests of CLAIMANT while simultaneously considering the interests of the Remainder Beneficiary(ies).” Trust Article 2.3.1. This language is vague because it directs the thought process of the trustee and is essentially unreviewable. The language indicates that the trustee is to consider the interests of the remainder beneficiaries in making decisions about whether to expend amounts that might deplete the Trust and thus leave nothing for the remainder beneficiaries upon Claimant's death. If the trustee were to follow the guidance of this Article, the trustee might refrain from depleting the Trust so as to preserve inheritance for the remainder beneficiaries. Oddly, the Medicaid payback might actually be preserved under such a scenario, because if and when Claimant died, Medicaid would be the first payee ahead of the remainder beneficiaries. Trust Article 2.6.1.1.

Trust Articles 5..6 and 2.3.1 are not necessarily inconsistent with the requirements for exemption. Significantly, the two types of Medicaid payback trusts differ in their requirements about exclusive benefit to the disabled individual. The statute requires that accounts in a pooled trust be “solely for the benefit of individuals who are disabled.” 42 U.S.C. § 1396p(d)(4)(C)(iii)(emphasis added). The statute requires that assets in an SNT be “for the benefit of such individual.” 42 U.S.C. § 1396p(d)(4)(A). The POMS reflect this difference. POMS SI 01120.203(B)(1), (B)(2)(a). As a matter of statutory construction, we presume that the difference is meaningful, and that SNT's therefore are not required to be “solely” for the benefit of the disabled individual. However, establishing the exact contours of the interests of remainder beneficiaries is beyond the scope of this memorandum. Therefore, we will assume conservatively that Trust Articles 5.6 and 2.3.1 could be used in a ways that would trigger the necessity for the null and void clause.

Florida law controls in this case because the Trust was established in the Circuit Court for Palm Beach County, Florida, and the Trust provides that the 15th Judicial Circuit Court for the State of Florida retains jurisdiction over the Trust. Trust Article 5.11.2. Florida law strongly emphasizes the intention of the grantor when interpreting trust agreements. “In construing the provisions of a trust, the cardinal rule is to try to give effect to the grantor's intent, if possible.” Parker v. Shullman, 906 So.2d 1236, 1237 (Fla. 4th DCA 2005), citing Vetrick v. Keating, 877 So.2d 54, 58 (Fla. 4th DCA 2004). Here, the grantor intended unambiguously to prioritize qualification of the Trust as a SSI exemption. The Order establishing the SNT states as it's first finding, “It is in the best interests of [Claimant] to be eligible for Social Security and Medicaid benefits.” The Order's first direction is as follows: “The Court hereby approves of the establishing of the attached Special Needs Trust pursuant to Florida and Federal Medicaid Law under 42 U.S.C. 1396 (p) (d) (4) (a)[sic] . . . .” The introductory paragraph of the Special Needs Trust Agreement (Trust) states, “This Trust is written pursuant to 42 U.S.C. § 1396(d)(4)(A) [sic] . . . .” The Agreement further states, “[I]t is expressly intended that this Trust will provide benefits to supplement those which may otherwise be available to CLAIMANT . . . and also satisfy the requirements of Title 42 of the U.S.C. § 1396p(d)(4)(A).” Trust Article 1.2.1.

Florida law also allows provisions of a trust to be severed from the trust, without invalidating the entire trust. See V~, 877 So.2d at 55-56. In V~, the testator attempted to distribute assets of her deceased husband's trust through a new trust for her daughter, but in doing so impermissibly expanded the class of beneficiaries to include her daughter's children. The court severed that portion of the new trust that expanded the class in order to allow the trust to stand, rather than disqualifying the new trust entirely and allowing the assets to pass from the original trust directly. See 877 So.2d at 55-56.

A problem remains with Trust Article 2.3.1 due to its vagueness. This article admonishes the trustee to consider the interests of remainder beneficiaries if depleting the Trust. If the trustee were to make a direct disbursement to a remainder beneficiary under Trust Article 5.6, the act would be apparent. However, Article 2.3.1 involves a mental process; the trustee could conceivably make decisions to disburse less to Claimant than his sole interests require in order to preserve assets for disbursement to the remainder beneficiaries after Claimant's death. As noted above, this scenario would have the odd effect of preserving assets for the Medicaid payback, but would be a use of the assets other than for the benefit of Claimant. The issue then is whether the lack of clarity and accountability renders the null and void clause ineffectual in neutralizing the offending clause.

Florida law permits severance of a trust provision that suffers from vagueness that would otherwise invalidate the trust. See Davis v. Rex, 876 So.2d 609 (Fla. 4th DCA 2004). The Court addressed the treatment of this issue under Florida law:

[W]e believe that, absent reformation, the controlling case law, which neither party has advanced, is as stated below:

If the designation of beneficiaries is deemed too indefinite for enforcement of the provisions of a trust, the usual result is that the trust is void and “the designated trustee holds the corpus under a resulting trust in favor of the estate of the settlor.” Where it is compatible with the settlor's intent, it may be possible to sever the uncertain provision from an accompanying enforceable one, “so that the remaining provision, and the trust as a whole, may be preserved.” McLemore v. McLemore, 675 So.2d 202, 205 (Fla. 1st DCA 1996)(citing Kunce v. Robinson, 469 So.2d 874, 877 (Fla. 3d DCA 1985)).

In K~,, the court stated that the provision there, which permitted the trustee to make distributions to such “others as the Trustee in his discretion may deem appropriate,” did not identify any particular entity, person or class which could enforce the trust. “It must therefore be deemed void for indefiniteness.” 469 So.2d at 877. However, because the settlor's primary intent was apparently to benefit the other named beneficiaries, the court severed this provision rather than invalidate the trust altogether.

This seems the correct result in this case if reformation fails. Scott died without issue, so there is nobody to enforce the terms of that half of the trust. That gift should be held void and held by the trustee on a resulting trust for the settlor's estate. Of course, there is no reason to invalidate Stephen's half of the trust, which can be severed and enforced.

876 So.2d at 613-14.

Florida law therefore should allow the null and void clause to be implemented against Trust Articles 5.6. and 2.3.1. The remaining issue is whether, absent these clauses, the Trust would still be viable. If the offending part of Article 5.6 were removed, the trustee would not have the option of distributing trust assets to remainder beneficiaries during Claimant's lifetime. Thus, the assets would revert to Claimant and would qualify as a changed circumstance, triggering the requirement to inform the Agency, which could then determine if Claimant continues to meet resource requirements. See POMS SI 02301.005(B)(2). Furthermore, the trustee could not carry out the intent of the Trust by terminating the Trust under circumstances that would cause Claimant to exceed resource limits. Thus, deleting the problematic portion of Article 5.6 would not appear to harm the Trust. Similarly, deleting the offending sentence in Article 2.3.1 would only require the trustee to consider Claimant's sole benefit in depleting the Trust. Such deletion would likewise not invalidate the Trust.

We agree that the Trust appears to meet the remaining requirements for SNT exemption to resource counting, as these requirements are described at POMS SI01120.203(D) “Procedure--Developing Exceptions to Resource Counting.” As noted above, we presume Claimant is under age 65 and is disabled. The trust appears to be established with Claimant's own assets, as he is the Grantor. See Declaration by the Grantor & Acceptance by the Trustee. Claimant is the beneficiary; and, with the null and void clause implemented against portions of Articles 5.6 and 2.3.1, is the sole beneficiary. A court established the Trust. The Trust provides specific language to reimburse the state for Medicaid upon the death of Claimant. Finally, the trust is irrevocable, so that consideration under SI 01120.200, “Countable Resources,” does not apply. See POMS SI 01120.203(B)(1).

CONCLUSION

We conclude that Florida law would allow the null and void clause to operate against those clauses that might allow disbursements to remainder beneficiaries during Claimant's lifetime. The Trust appears to contain the proper language for the other requirements for exemption from resource counting under 42 U.S.C. 1396p(d)(4)(A).


Footnotes:

[1]

Websites for the IRS and the Florida Department of State list Trustee as a non-profit corporation. IRS Exemption Organization, https://apps.irs.gov/app/eos/detailsPage?ein=753033804&name=Advocates%20%26%20Guardians%20for%20the%20Eldery%20%26%20Disabled&city=Longwood&state=FL&countryAbbr=US&dba=&type=CHARITIES,%20COPYOFRETURNS&orgTags=CHARITIES&orgTags=COPYOFRETURNS (last visited Dec. 23, 2020); Florida Dep’t of State Division of Corporations, Florida Department of State: Not for Profit Corporations, http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=EntityName&directionType=Initial&searchNameOrder=ADVOCATESGUARDIANSFORELDERLYDI%20N020000028660&aggregateId=domnp-n02000002866-18230063-6bce-463a-acd1-6e4592d474a6&searchTerm=advocates%20%26%20Guardians%20for%20the%20Elderly&listNameOrder=ADVOCATESGUARDIANSFORELDERLYDI%20N020000028660 (last visited Dec. 23, 2020).

[2]

All references to the Code of Federal Regulations are to the 2020 edition.

[3]

IRS, Tax Exempt Organization Search,

https://apps.irs.gov/app/eos/displayAll.do?dispatchMethod=displayAllInfo&Id=1249185&ein=591520581&country=US&deductibility=all&dispatchMethod=searchAll&isDescending=false&city=&ein1=59-1520581&postDateFrom=&exemptTypeCode=al&submitName=&sortColumn=orgName&totalResults=1&names=&resultsPerPage=25&indexOfFirstRow=0&postDateTo=&state=All+States

(last visited Aug. 12, 2020).

[4]

All references to the Code of Federal Regulations are to the 2020 edition.

[5]

 

All references to the Code of Federal Regulations are to the 2020 edition.

[6]

 

Indeed, the specific creation of a dedicated Medicare Set-Aside subtrust, with the express purpose of segregating “a share” of Trust assets for a Medicare Set-Aside Arrangement, further reinforces the interpretation that other assets held in the Settlement Protection subtrust are meant to be excluded from any state Medicaid agency reimbursement provision. See Trust, Art. 17, No. 17.

[7]

 

The Trust document notes that in the event NH received benefits from more than one state’s Medicaid agency, and “[i]f the Special Needs Subtrust has insufficient assets to repay all medical assistance benefits received, then each state shall be paid its proportionate share of the remaining Trust Assets.” Trust, Art. 9, § B, No. 6. Although somewhat ambiguous, this clause suggests that in this very specific case, Trust assets outside of the Special Needs subtrust could be subject to reimbursement. However, there is no provision regarding repayment of such a shortfall to a single state’s Medicaid agency, and reimbursement in that case per the language of the Trust agreement is limited to the Special Needs subtrust, with no reference to contribution from the Settlement Protection subtrust or from the overall Trust as a whole. See Trust, Art. 9, § B, No. 5. The failure of the Trust agreement to expressly provide that assets held in the Settlement Protection subtrust are likewise subject to the state Medicaid agency reimbursement provision prevents the Trust from meeting the special needs trust exception under the Act. See Act § 1917(d)(4)(A); POMS SI 01120.203.C.1

[8]

 

Further, the Trust agreement specifically notes that neither the segregation of Trust principal into the Medicare Set-Aside subtrust, nor payment of medical expenses from the Medicare Set-Aside subtrust, shall act as a limit on the Trustee’s powers or impair the absolute discretion provided to the Trustee regarding distributions or allotments from the Trust. See Trust, Art. 17, No. 17.

[9]

 

The text of section 1613(e)(5) only removes special needs trusts from consideration as a resource under section 1613(e) of the Act; it does not remove the trusts from consideration as a resource under the agency’s other resource counting rules.

[10]

 

However, even where the trust is irrevocable, the agency considers how the trust makes payments, and if the trustee can make any payments to or for the benefit of the individual or individual’s spouse, the portion of the trust from which the trustee can make payments and that is attributable to the individual is a resource for SSI purposes. See POMS SI 01120.201D.2.a

[11]

 

“Settlor” and “grantor” are synonymous terms. See POMS SI 01120.200.B.2.

[12]

 

All references to the Florida code are to the 2020 edition.

[13]

All references to Code of Federal Regulations are to the 2018 edition.

[14]

Florida’s probate code indicates a will may make a valid devise to a trust, even if the trust property is only the “possible expectancy” of receiving death benefits. See Fla. Stat. Ann. § 732.513(2). While this language is similar to the language other states have adopted from the Uniform Testamentary Additions to Trusts Act, See, e.g., Ala. Code Ann. § 43-8-140, Testamentary Additions to Trusts § 1, Unif. Testamentary Additions to Trusts Act (1991), it is not identical. Notably, it appears Florida declined to adopt the uniform language that expressly recognizes trusts that are not funded or regardless of the existence of the trust corpus, further suggesting that Florida continues to require property to establish a trust.

[15]

An express trust is one that is created or declared in writing and signed by a settlor. See Ga. Code Ann. § 53-12-20(a)(West 2018). An implied trust is a trust that is created where a person holds legal title to property is unable to enjoy the beneficial interest in the property, either based on the intent of the settlor or because doing so would violate an established principle of equity. See Ga. Code Ann. §§ 53-12-130, 53-12-132 (West 2018).

[16]

Unless otherwise stated, citation to “MTA” refers to every MTA executed for all eight states in this region.

[17]

The MTAs permit transfer of the Beneficiary’s assets to another section 1396p(d)(4)(C) trust, noting that such a transfer does not constitute early termination and does not require the State Medicaid agency to be reimbursed. MTA, § 6.6. The POMS permits such transfers, in that it states that “an early termination clause does not need to meet the . . . criteria [for early termination] if the clause solely allows for a transfer of the beneficiary’s assets from one Section 1917(d)(4)(C) trust to another Section 1917(d)(4)(C) trust.” POMS SI 01120.199.F.2.

[18]

The IRS’s website also indicates American Charitable Trust of Florida, Inc., is an exempt organization eligible to receive tax-deductible charitable contributions. See Exempt Organizations Selection Check, American Charitable Trust, Determination Letter: https://apps.irs.gov/app/eos/displayAll.do?dispatchMethod=displayAllInfo&Id=974097&ein=823536590&country=US&deductibility=all&dispatchMethod=searchAll&isDescending=false&city=clearwater&ein1=&postDateFrom=&exemptTypeCode=al&submitName=Search&sortColumn=orgName&totalResults=1238&names=&resultsPerPage=25&indexOfFirstRow=50&postDateTo=&state=FL (last visited July 24, 2019).

[19]

All references to the Code of Federal Regulations are to the 2019 edition.

[20]

We incorporate the previous opinion by reference, except for the updates specifically set forth in this Supplemental Opinion.

 

[21]

 

After the initial legal opinion was released, the agency revised POMS SI 01120.203, effective July 26, 2018. We refer to the current version in this opinion.

[22]

The Trust was amended and restated in 2009, 2014, 2015, 2016, and effective July 10, 2018, through a Declaration.

 

[24]

. We incorporate the previous memorandum by reference except for the updates specifically set forth in this Supplemental Opinion.

[25]

. All references to the Code of Federal Regulations are to the 2018 edition.

[26]

. . MS Recipient does not currently receive SSI, but we nonetheless use the identifying term “Recipient” for purposes of consistency in this opinion.

[27]

. . . All references to the Code of Federal Regulations are to the 2017 edition.

[28]

. . Specifically, the IRS’s website indicates NSFNI is a public charity to which certain contributions could be tax deductible. See Exempt Organizations Selection Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=20-8405771&names=&city=&state=All...&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited July 10, 2017).

[29]

. . Indemnity is a legal obligation to be held responsible for another’s wrongdoing despite a lack of any personal negligence or fault. See, e.g., Zeiger Crane Rentals, Inc. v. Double A Indus., Inc., 16 So. 3d 907, 911 (Fla. Dist. Ct. App. 2009); Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 107 (Ky. 2003); Gully v. First Nat. Bank, 184 So. 615, 617 (Miss. 1938).

[30]

. . We also note that the Master Trusts indicate they “shall not be used to reimburse any state . . . government for any benefits or maintenance representing basic medical care. . . .” Master Trusts, Art. 6. This prohibition is not limited to the lifetime of a Beneficiary and could conflict with the pooled trust requirement that a sub-account pay back Medicaid upon the death of a Beneficiary. NFSNI should consider clarifying this language.

[31]

. . * We incorporate the previous memorandum by reference except for the updates specifically set forth in this Supplemental Opinion.

[32]

. See Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=&names=%22foundation+for+indigent+guardianship%22&city=&state=FL&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Dec. 13, 2016).

[33]

. See Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=75-3033804&names=&city=&state=FL&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Dec. 13, 2016).

[34]

. The language of the Amended Declaration says that the Trust or a Trust beneficiary, but we presume the latter refers to Trust beneficiary’s sub-accounts based on the context of the provision. See Amended Declaration, Art. 6, § 6.9.

[35]

. All references to the C.F.R. are to the 2016 edition.

[36]

. We read the plain language of the implementing POMS to require that the individual whose assets were used to establish a trust sub-account must meet the definition of disabled for purposes of the SSI program. See POMS SI 01120.203.B.2.b. Such a reading would disqualify the Amended Master Trust from the pooled trust exemption because, here, the trust sub-accounts can be established with assets from persons who may not be disabled. See Declaration, Art. 1, § 1.7. However, the agency does not require such a strict reading of the implementing POMS provision and it is our understanding that the agency is amending the POMS provision to clarify this issue.

[37]

. All references to the Code of Federal Regulations are to the 2015 edition.

[38]

. Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1= 043625771&names=&city=&state=All...&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Mar. 30, 2016); Florida Department of State, Division of Corporations, http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResults? inquiryType=EntityName&searchNameOrder=guardiantrustfoundation&searchTerm=guardian%20trust%20foundation (last visited Mar. 30, 2016).

[39]

. Prior to November 19, 2012, the Master Trust allowed the Trustee, in its discretion to refund all or any portion of a trust sub-account to a grantor, if it becomes impossible to fulfill the conditions of the Master Trust with regard to a respective beneficiary for reasons other than the beneficiary’s death. See Trust Decl., Art. VII, § 7.2. However, this provision was deleted when Article VII was amended on November 19, 2012. See Second Amendment to Trust Decl.

[40]

. All reference to the Code of Federal Regulations is to the 2015 edition.

[41]

. Exempt Organizations Select Check, https://apps.irs.gov/app/eos/pub78Search.do?ein1=59-2679597&names=&city=&state=All...&country=US&deductibility=all&dispatchMethod=searchCharities&submitName=Search (last visited Dec. 14, 2015).

[42]

. . All references to the Code of Federal Regulations are to the 2011 edition.

[43]

. . . “A third-party trust is a trust established with the assets of someone other than the beneficiary.” POMS SI 01120.200.B.17. To “revoke” a trust means to “reclaim or take back[] the assets deposited in the trust.” POMS SI 01120.200.B.19. To “terminate” a trust means to “end[] a trust and obtain the assets for [the person terminating the trust].” POMS SI 01120.200.B.20.

[44]

. The Act also states that a trust is not an individual’s resource if the trust meets the requirements for a special needs trust in section 1917(d)(4)(A), even though payments could be made from the trust to or for the benefit of the individual. See Act §§ 1613(e)(5), 1917(d)(4). You did not ask us to provide an opinion regarding whether the trust meets the requirements of a special needs trust.

[45]

. . All references to the Florida Statutes Annotated are to the 2011 edition.

[46]

. . A court may not modify a trust under this section if the trust was created after December 31, 2000, and its terms require all beneficial interests in it to vest or terminate within the period prescribed by Florida’s “Uniform Statutory Rule Against Perpetuities” and “expressly prohibit judicial modification.” Fla. Stat. Ann. §§ 736.04115(3)(b)(1) (citing Fla. Stat. Ann. § 689.225(2) (requiring a nonvested property interest to vest or terminate “no later than 21 years after the death of an individual . . . alive [when the interest is created],” or “within 90 years after its creation”)), 736.04115(3)(b)(2). However, as the court noted, “[t]he Last Will and Testament does not expressly prohibit judicial modification” (Order, ¶ K). Therefore, we believe the court could modify the trust under this section, even though it was created when Grantor died in October 2004 (Order, ¶ A) and required all interests in it to vest or terminate no later than “twenty-one (21) years after the death of the survivor of those beneficiaries living at the time of my death” (Will, Art. 2, ¶ E(5)(f)). See Fla. Stat. Ann. §§ 736.0401(1) (stating a trust may be created by a “[t]ransfer of property to another person as trustee . . . by will or other disposition taking effect on the settlor’s death”), 736.04115(4) (stating that for judicial modification under this section, a revocable trust is “created” when “the right of revocation terminates”).

[47]

. . However, Florida law states that the terms of a trust do not prevail over the “power of a court to modify . . . a trust under [Florida Statute §§ 736.04113 and 736.04115].” Fla. Stat. Ann. §§ 736.0105(2), (2)(j). A court modifying a trust under these sections may consider extrinsic evidence relevant to the proposed modification. See Fla. Stat. Ann. §§ 736.04113(3)(a), 736.04115(2)(b).


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1601825011
PS 01825.011 - Florida - 02/25/2021
Batch run: 02/25/2021
Rev:02/25/2021