On August XX, 2006, Robert S~, Judith's father, established The Judith C~ Trust for
the benefit of Judith (an adult). Claimant's Memorandum (Memorandum) at 1. The trust
was created because Judith expected to receive funds in connection with a settlement
in a class action lawsuit. Id.
The trust is intended to qualify as a supplemental needs trust or special needs trust
under 42 U.S.C. § 1396p(d)(4)(A) and Minn. Stat. § 501B.89. See Trust Recitals. When Judith received her first check from the settlement in January
2007, the trustee opened an account for the trust and deposited the funds. See Memorandum at 1.
The purpose of the trust is to provide for Judith's "reasonable living expenses and
other needs when benefits from publicly funded benefit programs are not sufficient
to provide adequately for those needs." Article II, § 2.02. However, disbursement
that would have the effect of replacing, reducing, or substituting publicly funded
benefits available to Judith or rendering Judith ineligible for publicly funded benefits
are prohibited. Id.
The trustee has sole discretion to use sums from the income and principal for expenditures,
which may include entertainment, education, travel, comfort, convenience and reasonable
luxuries, home maintenance, improvements or remodeling, purchase of a new home, and
special medical care not covered by publicly funded benefit programs. Article II,
The trust provides that, upon Judith's death,
1) The trustee shall pay the reasonable administrative expenses (including attorney's
fees and trustee's fees), funeral expenses, last bills and valid debts of JUDITH,
as approved by the Minnesota Department of Human Services or by the District Court
with advance notice to Department of Human Services, if required by law. Further,
and only if required by applicable state or federal law at that time, the trustee
shall reimburse the State of Minnesota for whatever sums of medical assistance paid
for JUDITH's benefit that the law requires to be reimbursed, but no more.
2) The remainder of the trust share shall be distributed to JUDITH's descendants,
Article II, § 2.02F.
The trust also provides that it may be terminated for reasons other than death of
the beneficiary, only if continued administration is contrary to the best interests
of the beneficiary because of state or federal legislation or unforeseen changes or
conditions or circumstances, or because the value of the assets makes administration
unduly burdensome or uneconomical for the beneficiary. Article VI, § 6.02. Court approval
for termination must be obtained and distribution is made pursuant to the provision
of Article II, § 2.02F. Article VI, § 6.02.
The trust states that it is irrevocable, except as may be ordered by a Court in the
beneficiary's best interest or if a Court determines the trust is not a supplemental
needs trust or special needs trust as defined by applicable law. Article III, § 3.01.
The trust contains a spendthrift provision which provides that "no right, title, or
interest in any of the property of this Trust or income accruing therefrom or in the
accumulations of such income payable or distributable under the provisions of this
instrument shall vest in the beneficiary, nor shall the principal or interest of the
Trust be liable for the debts of the beneficiary, nor shall the beneficiary (except
as may be expressly provided herein) have the right or power to sell, transfer, assign,
pledge, encumber or in any other manner dissipate or dispose of her interest in this
Trust prior to the actual distribution, in fact, by the trustee to the beneficiary
off property or income of this Trust, until such time of actual distribution, all
rights and interest of the beneficiary herein shall not subject to any judicial process
of levy upon attachment for or on behalf of such beneficiary's creditors or other
Generally, trusts established with the assets of the individual are considered a resource
for SSI purposes, even if the trust is irrevocable, unless the trust meets one of
the Medicaid payback exceptions under 42 U.S.C. § 1396p(d)(4)(A) (commonly referred
to as the special needs trust exception). See 42 U.S.C. § 1382b(e); POMS SI 01120.201, 01120.203. For this exception to apply, the trust must be:
(1) established with the assets of a disabled individual under age 65;
(2) established for the benefit of the individual by 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 the individual up to an amount equal to the total medical assistance paid
on behalf of the individual under a state Medicaid plan.
42 U.S.C. § 1396p(d)(4)(A); POMS SI 01120.203(B)(1)(a). In addition, even if a trust satisfies the Medicaid payback trust exception
to counting it as a resource under the statutory trust rules, the trust will still
be a resource, under the regular resource rules if: (1) the beneficiary can revoke
the trust; (2) the beneficiary can compel the trustee to provide for his support and
maintenance; or (3) the beneficiary is entitled to mandatory disbursements and the
beneficiary is not prohibited from anticipating, assigning or selling the right to
future payments. POMS SI 01120.200(D).
The Social Security Administration (Agency) previously determined that the trust in
question did not satisfy all of the Medicaid payback trust requirements. Specifically,
the Agency determined that the trust did not satisfy the second requirement that the
trust be established for the sole benefit of Judith by a parent, grandparent, legal
guardian or court for two reasons: 1) it did not comply with Agency policy that requires
a parent to first create a "seed trust" prior to transferring a competent adult's
funds to the trust; and 2) the early termination clause created contingent interests
that could benefit third parties during the lifetime of the claimant.
In addition, the Agency determined that the trust did not satisfy the third requirement
that the state 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 because: 1) the trust permits payment of prohibited expenses
prior to reimbursing the state for medical assistance; 2) the trust does not provide
that the state will receive all amounts remaining in the trust upon the death of Judith
up to an amount equal to the total medical assistance; rather, it would reimburse
the State of Minnesota only if required by applicable state or federal law at the
time; and 3) the trust provides only that the State of Minnesota will be reimbursed.
On March 25, 2008, the Judith's attorney filed a request for reconsideration. Notably,
the attorney did not raise any concerns regarding the issue of whether the trust was
established for the sole benefit of Judith by a parent. For the reasons discussed
below, we agree that the trust does not meet the requirements for the special needs
trust exception to counting it as a resource under the statutory trust rules. However,
we note that, if the deficiencies were remedied, such that the trust was not considered
a resource under 42 U.S.C. § 1382b(e), the trust as written would not be a resource
under the regular resource rules.
The Trust Was Not Established For The Sole Benefit Of Judith By A Parent, Grandparent,
Legal Guardian, Or Court
Under Agency policy, where a parent creates a trust with a competent adult's funds
to satisfy the Medicaid Payback exception, the parent must create a "seed trust."
POMS PS 01205.026. This would require that some amount of funds not belonging to Judith would have
to initially fund the trust prior to transferring Judith's assets to the trust.
In addition, the early termination provision in Article VI creates contingent interest
that could benefit third parties during Judith's lifetime. Thus, the trust was not
established for the "sole benefit" of Judith.
The Trust Allows The Trustee To Make Prohibited Payments Prior to Reimbursing The
According to the trust, the trustee shall pay the reasonable administrative expenses
(including attorney's fees and trustee's fees), funeral expenses, last bills and valid
debts of JUDITH, as approved by the Minnesota Department of Human Services or by the
District Court with advance notice to Department of Human Services, if required by
Article II, § 2.02F. Judith's attorney recognizes that, although the POMS does not
carry the weight of law, it does provide additional guidance on how to qualify for
a Medicaid payback trust. Memorandum at 2. Indeed, courts have recognized that the
POMS are entitled to deference. See Washington Dept. of Social Servs. v. Keffeler, 537 U.S. 371, 385 (2003) ("While these administrative interpretations [POMS] are
not products of formal rulemaking, they nevertheless warrant respect . . . ."); Martin v. OSHRC, 111 S. Ct. 1171, 1179 (1991) ("In addition, the Secretary regularly employs less
formal means of interpreting regulations . . . . Although not entitled to the same
deference as norms that derive from the exercise of the Secretary's delegated lawmaking
powers, these informal interpretations are still entitled to some weight on judicial
review.") (citing Batterton v. Francis, 432 U.S. 416, 425-26 & n.9 (1977); Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944); Whirlpool Corp. v. Marshall, 445 U.S. 1, 11 (1980)); Hartfield v. Barnhart, 384 F.3d 986, 988 (8th Cir. 2004) ("While these internal rules [POMS] do not have
legal force and do not bind the Commissioner, courts should consider them in their
According to POMS SI 01120.203(B)(1)(f):
To qualify for the special-needs trust exception, the trust must contain specific
language that provides that upon the death of the individual, the State will receive
all amounts remaining in the trust, up to an amount equal to the total amount of medical
assistance paid on behalf of the individual under the State Medicaid Plan. The State
must be listed as the first payee and have priority over payment of other debts and
administrative expenses except as listed in SI 01120.203(B)(3)(a).
NOTE: Labeling the trust as a Medicaid pay-back trust, OBRA 1993 pay-back trust, trust
established in accordance with 42 U.S.C. 1396, or as an MQT, etc. is not sufficient
to meet the requirement for this exception. The trust must contain language substantially
similar to the language above. An oral trust cannot meet this requirement.
POMS SI 01120.203(B)(3)(a) sets forth that only taxes due from the trust to the State or Federal government
because of the beneficiary's death and reasonable fees for administration of the trust
estate may be paid prior to reimbursement of the state.
Judith's attorney contends that, upon Judith's death, no expenses, administrative
or otherwise, can be paid from the trust without first obtaining approval of the Minnesota
Department of Human Services or a Court, pursuant to Minnesota law. Memorandum at
3 (citing. § 18.104.22.168 of the Minnesota Health Care Programs Manual). She argues
that, because neither the Minnesota Department of Human Services or a Court will violate
federal or state law, if the law prohibits payment of any expenses listed in Article
II, § 2.02F, such expenses will not be paid by the trustee. Id. at 3-4. Judith's attorney explains that the provision was written in order to provide
flexibility; thus, if the federal law changes and permits payment of funeral expenses,
then the trust can provide for these. Id. at 4. Judith's attorney also maintains that the trust at hand substantially complies
with the statutory language (of the Medicaid payback trust). Memorandum at 4.
However, the trust requires the approval of the Minnesota Department of Human Services
or a Court only "if required by law." Furthermore, the expenses which are listed in
Article II, § 2.02F, namely funeral expenses and last bills and valid debts, are not
legally impermissible expenses, and therefore, the Minnesota Department of Human Services
or a Court would not be required by law to disallow such expenses. Although these
are considered "prohibited" expenses for purposes of meeting the Medicaid Payback
trust exception, the attorney identified no legal prohibition on paying such expenses
in general before reimbursing the state. See POMS SI 01120.203(B)(3)(b).
Further, the "substantially similar" provision that Judith's attorney refers to in
the POMS is designed to address situations that are not specifically addressed by
the POMS. Here, the Agency has interpreted 42 U.S.C. § 1396p(d)(4)(A) through its
POMS, and has expressly stated that the only expenses that may be paid prior to payment
to the state include taxes due from the trust to the State or Federal government because
of the beneficiary's death and reasonable fees for administration of the trust estate.
See POMS SI 01120.203(B)(3)(a). Thus, the provision is not substantially similar to the language that would
be sufficient under the statute.
The Trust Does Not Provide That The State Will Receive All Amounts Remaining In The
Trust Upon Judith's Death
The trust provides:
Further, and only if required by applicable state or federal law at that time, the
trustee shall reimburse the State of Minnesota for whatever sums of medical assistance
paid for JUDITH's benefit that the law requires to be reimbursed, but no more.
Article II, § 2.02F.
Judith's attorney argues that the fact that the trust states that Medicaid will be
reimbursed "only if required by applicable state or federal law at the time" should
not disqualify the trust from the Medicaid payback trust exception because the trust
language "simply provides for the possibility that state or federal law could change
sometime in the future." Memorandum at 4. The Office of Income Security Programs has
advised, however, that SSA considers this trust provision to frustrate the Medicaid
Payback provisions of the statute. The statute excepts trusts from counting as resources
under the statutory trust provisions only "if the state will receive all amounts remaining
in the trust on the death of such individual up to an amount equal to the total medical
assistance paid." 42 U.S.C. §1396p(d)(4)(A). There is no language in the statute that
permits the limitation on the obligation to repay that is reflected in this trust's
The Trust Does Not Provide for Reimbursement to All States that Have Provided Medical
Assistance For Judith's Benefit
Finally, the Agency has previously determined that a trust that provides for reimbursement
to only one state does not meet the Medicaid payback trust exception to counting it
as a resource under the statute because, if the individual were to move to another
state at any time during her lifetime, the trust provisions would frustrate the other
state's ability to receive reimbursement for any medical assistance paid to the individual
during his lifetime. See POMS PS 01825.016 Illinois (PS 07-153 SSI-Illinois-review of the David C f/k/a K-- Supplemental Care
and Needs Trust).
According to the terms of the trust, any funds remaining at Judith's death, "shall
reimburse the State of Minnesota for whatever sums of medical assistance paid for
JUDITH's benefit that the law requires be reimbursed, but no more." Article II, §
2.02F (emphasis added). The trust does not provide for reimbursement to any other
state that may provide medical assistance.
Judith's attorney argues that nothing in the federal law or the POMS that requires
that a Medicaid payback trust must reference that reimbursement be made to any and
all states. Memorandum at 4. However, the statute does require that a Medicaid payback
trust must provide for reimbursement of "the total medical assistance paid on behalf
of the individual under a State plan . . . ." 42 U.S.C. § 1396p(d)(4)(a). Thus, a
fair reading of the statute suggests total repayment to any state from which an individual
receives Medicaid. Indeed, the Center for Medicaid has also interpreted the statutory
provisions to require that the trust provide for reimbursement to every state where
the individual may have lived. See The State Medicaid Manual § 3259.7 ("When an individual has lived in more than one
State, the trust must provide that the funds remaining in the trust are distributed
to each State in which the individual received Medicaid, based on the State's proportionate
share of the total amount of Medicaid benefits paid by all of the States on the individual's
behalf."). There is no indication in the statute that reimbursement can be limited
to only one individual state. In addition, the POMS at PS 01825.016 recognizes that all states must be reimbursed, as well. Judith's attorney seems to
concede that, if Judith received Medicaid from other states, then repayment to those
state's Medicaid plans would be required.
Judith's attorney states "it goes without saying that if [Judith] moved out of the
State of Minnesota and obtained Medicaid benefits from another state, that such state
would also be entitled to reimbursement upon [Judith's] death." Thus, she does not
seem to be arguing that reimbursement to any and all states would not be required.
The plain language of the trust, however, does not require the trustee to reimburse
any other state. Indeed, there is no language permitting the trustee to reimburse
any other state besides Minnesota. Thus, the plain, unambiguous language of the trust
appears to limit reimbursement only to the State of Minnesota. We do not believe the
trust language is substantially similar to that required by the Act. The substantially
similar requirement only allows for slightly dissimilar language which still meets
the substantive provisions of the exception. See POMS PS 01825.039 (PS 07-024 SSI-Ohio-Review of Request for Reconsideration on the James J. S-- Trust
For the reasons discussed above, we agree that this trust should be considered a resource.