This Regional Chief Counsel (RCC) opinion examines whether a pooled trust account 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 opinion concludes that the trust does not comply for two reasons: it was not established by a nonprofit organization and the information provided does not show that separate accounts are maintained for each beneficiary of the trust, and that the trust pools the accounts for purposes of investment and management of funds.

QUESTION

Whether the [NAME REDACTED] Irrevocable Pooled 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

On March 4, 2021, [NAME REDACTED], the number holder (NH), created the Trust. Trust Agreement, pmbl. According to the information provided, NH is a Supplemental Security Income (SSI) recipient, and funding for the Trust came from her assets – inheritance proceeds received from her deceased father’s State of North Carolina Teacher’s Retirement pension funds. NH set up the Trust through her own actions shortly after receiving the inheritance funds. The agency found NH incapable of managing her own finances, and since 1998, her mother has been her designated representative payee.

Below are the relevant provisions of the Trust.

I. Purpose and Administration

The Trust Agreement states that NH, as grantor, created the Trust, purportedly pursuant to 42 U.S.C. § 1396p (section 1917 of the Act) and 42 U.S.C. § 1382b (section 1613 of the Act). Trust Agreement, pmbl. NH appointed the Life Plan Trust, Incorporated, as the initial trustee (Trustee). See Trust Agreement, § 10. A document from the State of North Carolina certifies that Trustee is duly licensed to solicit charitable contributions in the State. The document states that Trustee’s Federal tax exempt status is as a 501(c)(3) charitable organization.^[1]

Trustee shall receive, hold, invest, and manage property received under the Trust and, during NH’s life, use the property and any income to secure NH’s supplemental and extra needs, as Trustee deems best in its absolute and sole discretion. See Trust Agreement, § 1.

In addition to powers granted under common law and statutory powers, Trustee has the power to sell, exchange, mortgage, encounter, lease, or otherwise dispose of any property in the Trust. See Trust Agreement, § 3.a. The Trust Agreement grants Trustee the power “[t]o place trust funds in a pooled income fund in order to obtain a more favorable rate of return.” Trust Agreement, § 3.c. Trustee’s discretionary distributions shall not be subject assignment, alienation, pledge, attachment, or claim of any creditor. See Trust Agreement, § 3.g.

The Trustee or a duly designated Trust Manager or Managers shall comply with all applicable North Carolina laws regarding periodic accounting of Trust funds. See Trust Agreement, § 6.

Trustee may resign at any time, and the resignation becomes effective thirty days after the mailing of the written notice to the beneficiary and the first remainder beneficiary. See Trust Agreement, § 11. The Trust Agreement does not appear to provide for the appointment of a successor trustee.

In a March 15, 2021 letter to the agency, Trustee’s executive director stated that the terms of the Trust Agreement state that Trustee “has complete discretion over any disbursements, the trust is irrevocable, and that expenditures are for supplemental purposes,” and “[t]he beneficiary has no rights or control of the funds.” Trustee’s executive director stated that the Trust was funded from an inheritance with the sum of $40,999.95. Trustee’s executive director also stated that Trustee “operates a Pooled Trust as described in 42 USC 1396 and 42 USC 1382B, which includes the funds of more than one disabled individual combined for investment and management purposes.” Trustee’s executive director referred to POMS section SI 01120.203 for a description of the “Pooled Trust.”

According the Request for Legal Opinion, there is no stand-alone master trust agreement created or executed by Trustee. Instead, each joinder executed (e.g., the Trust in NH’s case) outlines all trust provisions that exist with Trustee’s umbrella trust and the subaccount(s) associated with it. Trustee’s executive director informed the agency that all subaccount funds are combined for investment and management purposes in an investment portfolio with Wells Fargo Capital Management Investments.

II. Distribution

The Trust Agreement states that Trustee “shall carry out the wishes of [NH] as set forth in the comprehensive Care Plan document.” Trust Agreement, § 1.a. (The Care Plan was not provided.) The Trust funds are intended to provide for NH’s needs over and above the benefits from government or private agencies, but cannot be used to provide basic food and shelter unless all government benefits have been fully extended for such purposes. See Trust Agreement, § 1.b. The Trust Agreement states that it does not create any rights in NH as beneficiary. Trust Agreement, § 1.c. NH has no right to direct or demand that Trustee distribute Trust funds. See id. NH’s interest in the Trust is mere expectancy and not a property interest or enforceable right. See id.

Prior to the termination of the Trust, Trustee is prohibited from reinvesting title to any part of the principal of the Trust to NH, to hold or accumulate any income of the Trust or Trust fund for future distribution to NH, to distribute any part of the income of the Trust to NH, or applying any part of the income or principal to the payment of premiums for life insurance on NH. See Trust Agreement, § 9.c.i. Trustee also is prohibited from enabling NH to directly or indirectly borrow any part or all of the principal or income of the Trust. See Trust Agreement, § 9.c.iii.

III. Irrevocability and Spendthrift

The Trust Agreement states that the Trust is irrevocable. Trust Agreement, pmbl. A “Spendthrift Clause” states that all interest in the Trust created by the Agreement is intended for the personal protection and welfare of the beneficiaries and no such interest shall be transferable, voluntarily or involuntarily, by any beneficiary nor subject to claims of creditors or of a spouse or former spouse of such beneficiary. Trust Agreement, § 7.

IV. Termination

Upon NH’s death, the Trust terminates and Trustee or its duly designated Trust Manager must divide, transfer, and to the extent legally required to do so must insure that Medicaid assistance paid on behalf of NH under the North Carolina plan or any other State plan under subchapter XIX of the Act is paid to the State of North Carolina Medicaid authority or the Division of Medical Assistance or such other State plan. Trust Agreement, § 4. Any funds remaining must be paid to NH’s surviving parent, or if she dies before NH, to those persons who would be entitled to share NH’s estate under the intestacy laws of the jurisdiction in which NH dies. See id.

V. Governing Law

The Trust Agreement states that construction, validity, and effect of the Trust Agreement and the rights and duties of the beneficiaries and Trustee shall be governed exclusively by the laws of the State of North Carolina. Trust Agreement, § 9.a.

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 (2021).^[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 01110.100B.1; POMS SI 01120.010B. “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 01110.100B.1, B.3; POMS SI 01110.115A; 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, 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 POMS SI 01120.201A.1; POMS SI 01120.203A. 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 01120.203A. 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 01120.203D.1.

As written, the 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.

The Trust does not comply with the first enumerated requirement because the Trust is not established and managed by a nonprofit organization (i.e., an organization that has been established and certified under a state nonprofit statute). Act § 1917(d)(4)(C)(i); POMS SI 01120.203D.1, D.3. The Trust Agreement states that NH created the Trust. Trust Agreement, pmbl. NH is not a nonprofit organization. Trustee is a nonprofit organization created under North Carolina law, and the Trust agreement suggests that Trustee manages NH’s assets in the Trust, but the Trust Agreement does not indicate that Trustee established the Trust.

Trustee’s executive director stated that Trustee “operates a Pooled Trust as described in 42 USC 1396 and 42 USC 1382B, which includes the funds of more than one disabled individual combined for investment and management purposes.” Trustee’s executive director referred to POMS section SI 01120.203 for a description of the “Pooled Trust.” However, there is no stand-alone master trust agreement created or executed by Trustee. North Carolina law does not require a trust instrument to create a trust, but the creation of an oral trust and its terms “may be established only by clear and convincing evidence.” N.C. Gen. Stat. Ann. § 36C-4-407 (West 2021). The statement of Trustee’s executive director does not establish by clear and convincing evidence that Trustee has created a pooled trust or that the terms of such a trust, if created, comply with the requirements for a pooled trust under the Act and POMS. Thus, the Trust does not meet the first enumerated requirement of the Act’s pooled trust exception.

The Trust also does not appear to not comply with the second enumerated requirement that 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 . Act § 1917(d)(4)(C)(ii); POMS SI 01120.203D.1, D.4. The Trust Agreement establishes that the Trust was created by and for NH, and as a stand-alone trust, it is a separate account. The Trust Agreement grants Trustee the power “[t]o place trust funds in a pooled income fund in order to obtain a more favorable rate of return.” Trust Agreement, § 3.c. However, the Trust Agreement does not require the Trustee to take such action. Trustee’s executive director stated that all subaccount funds of the purported “Pooled Trust” are combined for investment and management purposes, but as noted above, the information provided does not establish by clear and convincing evidence that the “Pooled Trust” exists or that under the terms of the “Pooled Trust” separate accounts are maintained for each beneficiary of the trust and the beneficiaries’ funds are pooled for purposes of investment and management of the funds. See N.C. Gen. Stat. Ann. § 36C-4-407. The trust also must be able to provide an accounting for each beneficiary’s individual account. See POMS SI 01120.203D.4. The Trust Agreement states that the Trustee or a duly designated Trust Manager or Managers shall comply with all applicable North Carolina laws regarding periodic accounting of Trust funds. Trust Agreement, § 6. However, to the extent the assets in NH’s Trust are placed in the “Pooled Trust” as reported by Trustee’s executive director, the available information does not provide clear and convincing evidence that Trustee provides an accounting for each beneficiary’s individual account. See N.C. Gen. Stat. Ann. § 36C-4-407. Thus, the Trust does not appear to meet the second enumerated requirement of the Act’s pooled trust exception.

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 01120.203D.1. According to the information provided, NH is a disabled SSI recipient who funded the Trust with her own assets. Therefore, the Trust contained the assets of a disabled individual, i.e., NH.

The Trust complies with the third enumerated requirement for a pooled trust because accounts in the trust are established solely for the benefit of individuals who are disabled by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court . Act § 1917(d)(4)(C)(iii); POMS SI 01120.203D.1, D.5. NH created the Trust herself. Trust Agreement, pmbl. 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 01120.203D.5. The Trust Agreement provisions appear to establish that NH is the sole beneficiary of the Trust and the Trust does not benefit any other person or entity during NH’s lifetime. Trust Agreement, §§ 1, 3. The Trust Agreement appears to allow for termination of the Trust only upon NH’s death. Trust Agreement, § 4. Therefore, the Trust satisfies the third enumerated requirement of the Act’s pooled trust exception.

The Trust complies with the fourth enumerated requirement for a pooled trust because 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)(iv); POMS SI 01120.203D.1, D.8. The Agreement states that when NH’s dies, the Trustee or their duly designated Trust Manager must divide, transfer, and to the extent legally required to do so must insure that Medicaid assistance paid on behalf of NH under the North Carolina plan or any other state plan under subchapter XIX of the Act is paid to the State of North Carolina Medicaid authority or the Division of Medical Assistance or such other State plan. Trust Agreement, § 4. Thus, the Trust satisfies the fourth enumerated requirement of the Act’s pooled trust exception .

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. The Trust was established by NH, not a nonprofit organization, and if Trustee established a separate “Pooled Trust” that could be proved by clear and convincing evidence in the absence of a trust instrument, the information provided does not show that separate accounts are maintained for each beneficiary of the trust and that the trust pools the accounts for purposes of investment and management of funds. The Agreement contains acceptable language to satisfy the other requirements under section 1917(d)(4)(C) and the implementing POMS provisions.

In this opinion, the Regional Chief Counsel (RCC) examines the Umbrella Pooled Trust established by Corporation of Guardianship, Inc to determine whether the trust meets the requirements for exception under section 1917(d)(4)(C) of the Social Security Act. The RCC concludes that the trust does not comply with several of the pooled trust requirements due to a number of problematic provisions in the trust.

QUESTION

 

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

 

BACKGROUND

 

The Trust Declaration, included in the materials provided, states that the Corporation of Guardianship (COG), a non-profit corporation organized under the laws of the State of North Carolina established the Trust on December 9, 2003. Trust Decl., pmbl.; Art. 1. The Joinder Agreement, signed by [name redacted] (the claimant) on January 6, 2018, indicates that COG acts as the trustee of the Trust. Joinder Agreement, pmbl. COG established the Trust as a pooled trust under 42 U.S.C. § 1396p (section 1917(d)(4)(C) of the Act) for the benefit of its beneficiaries. See Trust Decl., Art. I. The Trust Declaration includes sub-account trusts that are established for the sole benefit of a beneficiary, defined as a disabled person under 42 U.S.C. § 1382c(a)(3). Trust Decl., Art. 3.

 

COG, as the trustee, is empowered to pool all sub-account assets for management and investment purposes. See Trust Decl., Art. 3; Art. 6. The trustee has managerial control over the Trust. See Trust Decl., Art. 6: Art. 4. 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. 6. The trustee makes periodic reports to each beneficiary including a complete statement of all receipts, disbursements, and distributions during the reporting period. See Trust Decl., Art. 6; Art. 3. Additionally, the Trust sub-account records are available and open at all reasonable times for inspection by the beneficiary or her legal representative. See Trust Decl., Art. 6. Costs of defending or enforcing the Trust may be apportioned on a pro rata basis to all sub-accounts in the sole discretion of the trustee. See Trust Decl., Art. 6.

 

A joinder agreement for a beneficiary may create a Trust sub-account. See Trust Decl., Art. 2; Joinder Agreement, § A. 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. 3. The Trust Declaration indicates that a grantor contributes money or property belonging to the beneficiary or their own money or property to the Trust. Trust Decl., Art. 3. A contribution of the grantor’s own money or property must be for the sole benefit of the beneficiary and may be made by gift, will, or agreement. See Trust Decl., Art. 3.

 

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. Trust Decl., Art. 2; Art. 6; Joinder Agreement, § J. Instead, the trustee has sole discretion to distribute funds for a beneficiary’s needs and care. See Trust Decl., Art. 4; Art. 6. 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. Trust Decl., Art. 4.

 

On the death of a beneficiary, the sub-account established for that beneficiary terminates and the trustee distributes any undistributed balance of the sub-account as the grantor may have directed to other persons or entities, other than the grantor’s estate. See Trust Decl., Art. 5. If a will or codicil or other power of appointment is not presented to the trustee within 60 days of the beneficiary’s death, the trustee may presume that no such power of appointment exists and the trustee shall retain the assets of the sub-trust for the benefit of the other beneficiaries of the Trust.

See Trust Decl., Art. 5; Joinder Agreement, § H (explaining that COG may retain 100% of the funds remaining in the sub-account at the termination of the joinder agreement, or in its sole and absolute discretion, it may elect to retain less than 100% of the remaining funds based on years of service as trustee).

 

Pursuant to 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act), the Trust Declaration states that the trustee will satisfy from the balance of assets comprising the sub-account all proper state claims for reimbursement of medical assistance paid on behalf of the beneficiary under a state plan. Trust Decl., Art. 5; Joinder Agreement, § H. However, the trustee does not repay state claims for reimbursement of medical assistance paid on behalf of the beneficiary under a state plan, when all of the money or any portion of the money transferred by a grantor to the sub-account did not consist of the beneficiary’s own property. See Trust Decl., Art. 5.

 

Subject to the notice and payback provisions of the Trust Declaration, the Trust may be terminated during the lifetime of the beneficiary for impossibility of performance, failure of essential purpose, or other good and valid cause. Trust Decl., Art. 5. If the Trust terminates during the lifetime of the beneficiary, the trustee may make distributions from the Trust estate as if the beneficiary had died. See Trust Decl., Art. 5. The trustee may also make separate arrangements with a distribution to conserve, manage, and distribute the proceeds of the former Trust estate to provide for the basic living needs of the beneficiary. See Trust Decl., Art. 5. The trustee may refund all or any portion of the property in a Trust sub-account to a grantor, if it becomes impossible to fulfil the conditions of the Trust for reasons other than the death of the beneficiary. See Trust Decl., Art. 5.

 

The information provided also includes a September 20, 1985, letter from the Internal Revenue Service (IRS) stating that COG, is an exempt organization under section 501(c)(3) of the Internal Revenue Code.^[3]

 

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 (2021).^[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). “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, the Act provides certain exceptions for trusts established in accordance with section 1917(d)(4) of the Act. Act § 1613(e)(5); see 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:

 

(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 title.

 

Act § 1917(d)(4)(C); accord POMS SI 01120.203D.1.

 

The Trust does not appear to satisfy the initial requirement in the first sentence of section 1917(c)(4)(C) that the trust contain assets of a disabled individual. Although a grantor of the Trust may contribute money or property belonging to the beneficiary, there is no requirement that the Trust sub-account contain only money or property belonging to the beneficiary. Trust Decl., Art. 3. Rather, a grantor, other than the beneficiary, may contribute only his or her own money or property to the sub-account. See Trust Decl., Art. 3. Further, the Trust Declaration contemplates a situation in which “all of the money or property, or any portion thereof transferred by the Grantor to the Trust Sub-account did not consist of the Beneficiary’s own property.” Trust Decl., Art. 5 (emphasis added).

 

The Trust does comply with the first enumerated requirement for a pooled trust under section 1917(d)(4)(C), namely, that the trust be established and managed by an organization that has been established and certified under a state nonprofit statute. Act § 1917(d)(4)(C)(i); POMS SI 01120.203D.1, D.3. On September 20, 1985, the IRS issued a letter stating that COG, is an exempt organization under section 501(c)(3) of the Internal Revenue Code, and the IRS lists COG on its website of tax exempt organizations. See POMS 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). Additionally, the Trust Declaration specifies that COG is a non-profit corporation under the laws of North Carolina and has managerial control over the Trust. Trust Decl., pmbl.; Art. 1; Art. 4; Art. 6; Joinder Agreement, prml; § J. Thus, the Trust meets the first enumerated 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. Here, 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. 3; Art. 6. Therefore, the Trust satisfies the second requirement for the pooled trust exception.

 

The Trust does not comply with the pooled trust requirement that 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. Although the Trust here represents that the sub-accounts are for the sole benefit of each beneficiary (see Trust Decl., Art. 3), a provision of the Trust creates a contingent interest that could benefit third parties during the individual’s lifetime. The Trust provides that costs of defending or enforcing the Trust may be apportioned on a pro rata basis to all sub-accounts in the sole discretion of the trustee. See Trust Decl., Art. 6.

 

The POMS, 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 provision here could allow the trustee to charge a pro rata share against a sub-account that would not benefit the beneficiary of the sub-account. Therefore, this Trust provision contemplates the potential use of assets in a beneficiary’s sub-account for the benefit of others besides the beneficiary.

 

Additionally, the Trust allows the trustee to make distributions from a sub-account to individuals other than the beneficiary during the beneficiary’s lifetime. If the Trust terminates during the lifetime of the beneficiary, the trustee may make distributions from the Trust estate as if the beneficiary had died, i.e., to individuals or entities other than the beneficiary. See Trust Decl., Art. 5. The trustee may also refund all or any portion of the property in a Trust sub-account to a grantor (other than the beneficiary), if it becomes impossible to fulfil the conditions of the Trust for reasons other than the death of the beneficiary. See Trust Decl., Art. 5. Therefore, because the trustee has the discretion to make distributions that would benefit individuals other than the beneficiary the Trust does not meet the sole benefit requirement of the Act. See POMS SI 01120.201D.5 (“This exception does not apply if the trust account allows for termination of the trust account prior to the individual’s death and payment of the corpus to another individual or entity.”).

 

The trust also fails to meet the fourth requirement regarding the repayment to a state of medical assistance paid under the state Medicaid plan after the beneficiary’s death. Here, the Trust Declaration states that to pursuant to 42 U.S.C. § 1396p(d)(4)(C) (section 1917(d)(4)(C) of the Act), the trustee will satisfy from the balance of assets comprising the sub-account all proper state claims for reimbursement of medical assistance paid on behalf of the beneficiary under a state plan. Trust Decl., Art. 5; Joinder Agreement, § H. However, the trustee also has the discretion to refuse state claims for reimbursement of medical assistance paid on behalf of the beneficiary under a state plan, if he determines that all of the money or any portion of the money transferred by a grantor to the sub-account did not consist of the beneficiary’s own property. See Trust Decl., Art. 5.

 

Under this provision of the Trust Declaration, a grantor may defeat the state plan payback provision of the Act. Specifically, the grantor could proactively transfer assets not belonging to the beneficiary to the sub-account before the beneficiary’s death. Should a grantor do so, this provision would allow the trustee to exercise its discretion to refuse reimbursement claims under an otherwise qualifying state plan. Because the trustee has the discretion to make determinations enabling the Trust to avoid the repayment provisions of the Act, the Trust does meet the fourth requirement for as a qualifying pooled trust.

 

Accordingly, the Trust does not meet the requirements for pooled trusts under section 1917(d)(4)(C) of the Act and the relevant POMS provisions.

 

CONCLUSION

 

The 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.

 

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

QUESTION

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

BACKGROUND

SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).^[5] 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.^[6]

Georgia:

Georgia statutes, which recognize two types of trusts, express and implied,^[7] require express trusts to include trust property, and presume implied trusts include trust property. See Ga. Code Ann. §§ 53-12-2(3), (5); 53-12-20(b)(2); 53-12-130; 53-12-132 (West 2018); see also Ga. Code Ann. § 53-12-20(9) (West 2018) (defining property as “any type of property, whether real or personal, tangible or intangible, legal or equitable”). Georgia case law also holds that an essential element of an express trust is the existence of trust property. SeeHayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Georgia’s statutes regarding wills and estates, however, appear to recognize at least some unfunded trusts by describing situations in which a will may validly transfer property to a trustee of a trust. See Ga. Code Ann. § 53-12-101(a). Specifically, Ga. Code Ann. § 53-12-101(a) indicates a will may validly transfer property to the trustee of, among other types of trusts, an “unfunded life insurance trust,” and a trust identified in a will, where the terms of the trust are set forth in a written instrument other than a will, “regardless of the existence, size, or character of the corpus of the trust.” Thus, Georgia law appears to recognize a trust may be established with no funds under certain situations.

Kentucky:

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

Mississippi:

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

North Carolina:

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

South Carolina:

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

Tennessee:

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

CONCLUSION

[None]

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

QUESTION

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

OPINION

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

BACKGROUND

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

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

I. Purpose and Establishment of the Trust

CPT’s MTAs identify CPT as the Trustee. See MTA, § 2.2.^[8] 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.^[9]

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

To qualify as a pooled trust, the trust account also must be “established... by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.” 42 U.S.C. § 1396p(d)(4)(C)(iii); see POMS SI 01120.203.D.6. The MTAs here meet this requirement, as they require that a beneficiary or a grantor, who must be a parent, grandparent, legal guardian, or other person acting pursuant to a court order, execute the joinder agreement to establish an IBA under the MTA. MTA, §§ 3.1, 13.2; Alabama, Georgia, Mississippi, North Carolina, South Carolina MTA, § 2.3; Florida, Kentucky, Tennessee MTA, § 2.5. The joinder agreements submitted for NH1, NH2, and NH3 for the Florida, Kentucky, and Tennessee MTAs, respectively, also show that each of these individuals have established their IBAs either through their own actions or through the actions of their parents.

6. Remaining Amounts Paid to the State

Sixth, “[t]o the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan.” 42 U.S.C. § 1396p(d)(4)(C)(iv); accord POMS SI 01120.203.D.8. The trustee may pay taxes and reasonable fees and costs before paying the state for medical assistance. SeePOMS SI 01120.203.E.1.

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

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

CONCLUSION

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

This Regional Chief Counsel (RCC) opinion examines the effective date, for Supplemental Security Income (SSI) eligibility purposes, of a trust amendment that purports to relate back to the date the trust was originally established. The RCC concludes that the trust amendment is effective only as of the date of the amendment; it is not effective retroactively.

QUESTION

You asked us to determine the effective date of a September 18, 2019 Amendment of Trust (Amendment) that purports to relate back to March 21, 2019, the date “The J~ Trust” (Trust) was established for a Supplemental Security Income (SSI) Recipient, J~ (Recipient).

BRIEF ANSWER

The Amendment to the Trust is effective only as of September 18, 2019, the date of the Amendment, for determining Recipient’s eligibility for SSI.

BACKGROUND

According to the opinion request, the State of North Carolina found Recipient incompetent in 2016 and appointed R~ (Trustee) as his legal guardian. On March 21, 2019, Trustee established the Trust for Recipient’s benefit.

On June 11, 2019, a North Carolina court approved a settlement of $32,000 for Recipient and ordered disbursement of the monies into the Trust.

In August 2019, the agency found the Trust a countable resource because Article E of the Trust did not comply with the early termination provisions of Programs Operations Manual System SI 01120.199. Article E of the Trust states:

If the trust terminates for any reason other than death of the beneficiary, and if any trust property remains, the Trustee shall transfer, convey and deliver, absolutely in fee simple, the remaining assets of the trust to the grantor, [Grantor]. If [Grantor] shall die before said termination of the trust, then the Trustee shall transfer convey and deliver, absolutely in feel (sic) simple, the remaining assets of the trust to my daughter and [Recipient]’s sister, A~.

The agency determined that the Trust’s value rendered Recipient ineligible for SSI due to excess resources. Therefore, the agency found Recipient ineligible for SSI effective July 2019.

On September 18, 2019, Trustee executed the Amendment, which explains, “Grantor wishes to amend and relate back the Trust to its original date of execution, the 21st day of March, 2019.” The Amendment further states, in relevant part, “I hereby revoke Article E ‘Termination of Trust for Other Reasons’ in its entirety, effective as of the 21st day of March, 2019.”

The agency determined the Amendment rendered the Trust compliant with the agency’s income resource exception and reinstated Recipient’s eligibility for SSI effective October 2019.

DISCUSSION

We believe the Amendment is effective as of September 18, 2019 under North Carolina law, not March 21, 2019. No published court decision in North Carolina has directly addressed reformation of a trust. See N.C. Gen. Stat. Ann. § 36C-4-415, N.C. Comment (West 2019). However, dicta from the North Carolina Supreme Court indicates reformation of a trust cannot be retroactive.

In Edmisten v. Sands, a trial court ordered construction of a will from its inception as including missing elements required for administration of a trust in accordance with technical requirements for charitable trusts in Internal Revenue Service regulations. 300 S.E.2d 387 (N.C. 1983). The trial court also ordered reformation of the trust nunc pro tunc to include all necessary requirements for a charitable trust. Id. The North Carolina Supreme Court held the trial court properly ordered construction of the will in accordance with a specific North Carolina statute that governed charitable trusts. Id. at 677. However, the Court vacated the trial court’s reformation of the trust on grounds it was less effective in achieving the purpose of the statute. Id. The Court explained, “ [a]rguably, an order reforming the trust would only speak from the date of the entry of the order . . . .” Id. (emphasis in original). Therefore, Edmisten suggests reformation of a trust is effective as of the date of reformation.

Subsequent to Edmisten, North Carolina adopted the Uniform Trust Code (UTC). See N.C. Gen. Stat. § 36C. The UTC provides, in relevant part, that a court has power to reform the terms of a trust to conform to the settlor’s intent if the terms of the trust are ambiguous and the terms of the trust were affected by a mistake of fact or law. See N.C. Gen. Stat. § 36C-4-415. Although the UTC contemplates a court reforming a trust due to a mistake of law, it does not provide for retroactive reformation. Seeid.

In sum, Edmisten indicates a settlor cannot reform a trust retroactively and the UTC does not state otherwise. Therefore, we do not see a specific basis in North Carolina law for retroactive amendment of the Trust.

Further, even if North Carolina permitted retroactive reformation of the Trust, we do not believe it would affect the agency’s consideration of the Trust as a countable resource. The Court of Appeals for the Seventh Circuit held that reformation of a trust to correct a mistake related back to the date of the original document as to the parties, but it did not affect the rights of non-parties, including the federal government. Van Den Wymelenberg v. U.S., 397 F.2d 443, 445 (7th Cir. 1968).

In Van Den Wymelenberg , taxpayers sought to retroactively amend a trust to reduce their tax liability. Id. The Court explained that federal tax liabilities would remain unsettled for years after their assessment if private persons or state courts were empowered to retroactively affect tax consequences. Id. Similarly, eligibility for SSI would remain unsettled if individuals could retroactively amend trusts to render them compliant with the agency’s income resource exception for such trusts. Therefore, Van Den Wymelenberg suggests retroactive trust amendments, even if valid, would not affect the rights of the agency to consider trusts as countable resources prior to the date of amendment.

CONCLUSION

The Amendment is effective as of September 18, 2019, the date of its execution, for determining Recipient’s eligibility for SSI.