Top Ten Issues Explained in RCCPs, continued

SSI Regional Chief Counsel
First and Third party SNTs, non-SNT Asset Transfers
and Resource Exclusions
March, 2014
David Lillesand, Esq.
[email protected]
Why discuss Supplemental Security Income
(SSI) Rules at all?
After all • SSI is a monthly income payment from the Social Security
Administration (SSA)
• The direct goal of many clients is securing Medicaid health insurance
benefits, mo’ money is secondary
• SSI-related Medicaid flows automatically in 34 states via Section 1634
of the Social Security Act
• Medicaid cannot have eligibility rules more restrictive than the
federal SSI rules – 24 U.S.C. §1396a(a)(10)(C)(i)(III)
Who are these Regional Chief Counsels and why
should we pay attention to their opinions?
• RCCs are the attorneys for SSA staff (in-house counsel)
• RCC duties include:
Drafting and reviewing SSA regulations
Reviewing proposals for federal legislation
Reporting to Congress, OMB and others
Coordinating federal litigation strategy and representing SSA,
with DOJ via U.S. Attorneys office in federal court (counsel of record)
• Most importantly – RCCs review your plans (SNTs and
others) and advise local SSA staff to approve or deny your
client’s claim
• But they are not federal ALJs and do not appear in
your cases at the administrative level of appeals
The Ten Administrative Regions of the U.S.
Regions: Atlanta, Boston, Chicago, Dallas, Denver, Kansas City,
New York, Philadelphia, San Francisco, and Seattle. Each region
has web pages highlighting regional initiatives, local public
information resources, and connections to local offices.
When to use RCC Precedents (opinion letters)
•Before designing your special needs plan
or drafting documents
•At SSA Initial and Reconsideration levels always
•At SSA ALJ administrative hearings –
•In Federal Court - always
Where to find the RCC Precedents
Program Operations Manual System (POMS)
Table of Contents
RM - Records Maintenance
GN - General
RS - Retirement and Survivors Insurance
DI - Disability Insurance
SI - Supplemental Security Income
Not here!
HI - Health Insurance
NL - Notices, Letters and Paragraphs
VB - Special Veterans Benefits
PR - Title II Regional Chief Counsel Precedents
PS - Title XVI Regional Chief Counsel Precedents
SL - State and Local Coverage Handbook
The materials accompanying this presentation
• Designed to be used in electronic format
• Contain the text of every RCC Precedent, by
state through March 3, 2014
• More importantly – have a TABLE of CONTENTS
by topic of the issues discussed with a oneparagraph SUMMARY of each case
• Most helpfully, have hyperlinks to the actual text
of the full RCC Precedent
Some initial thoughts
• Know your state law – e.g., grantor trusts (DWT),
empty/dry vs. seed trusts, nunc pro tunc, ability
to assign structured settlements to an SNT, etc.
• Follow the POMS requirements, then check the
Regional POMS and the RCC Precedents
• If your trust is defective, identify and cure all the
defects at once
• Query: what to do with conflict between
National POMS and RCCPs
More initial thoughts
•Special Needs Plan - Large number of RCCPs
on validity of plan or SNT versus…
•Plan execution – Tiny number on
administration of the plan or SNT once it is
found to be a permissible non-countable
•January 1, 2000 – Important date - Be aware
of decisions on planning before or after
imposition of transfer penalty
More initial thoughts
• State/federal law Interplay – validity of your plan
or SNT federal rule application
• Surveys - Some RCCPs are “surveys of state law
in Region ____ on…”
• Clients move – anticipate client changing state
• Children become sui juris – be aware of ability of
child to undo your plan, or state law so doing
Final initial thoughts
• Contact with RCC: When will you have direct
contact with the RCC or his or her staff?
– probably NEVER!
• Exception #1: if your state law changes,
as occurred in Michigan and Florida, do contact
the RCC and offer a proposed Regional POMS to
reflect the change
• Exception #2: Continual error by SSA local staff
in administering the SSI program
Top Ten Issues Explained in RCCPs
Issue #1 - Grantor Trust Rule – Doctrine of
Worthier Title
“In some cases, the authority to revoke a trust is held by the
grantor. Even if the power to revoke a trust is not specifically
retained, a trust may be revocable in certain situations. (See SI
01120.200B.8. and SI 01120.200D.3. for information on
grantor trusts.) Additionally, State law may contain
presumptions as to the revocability of trusts. If the trust
principal reverts to the grantor upon revocation and can be
used for support and maintenance, then the principal is a
resource to the grantor.”
POMS SI 01120.200.D.1.d.
Top Ten Issues Explained in RCCPs, continued
Issue #1 - Grantor Trust Rule
8. Grantor trust
“Subject to State law, a grantor trust is a trust in which the
grantor of the trust is also the sole beneficiary of the trust.
See SI 01120.200B.2. for who may be a grantor. State law on
grantor trusts varies. Consult with your regional office, if
POMS SI 01120.200.B.8.
Top Ten Issues Explained in RCCPs, continued
Issue #1 - Grantor Trust Rule – Heart of the
“3. Revocability of grantor trusts
Some States follow the general principle of trust law that if a grantor is also
the sole beneficiary of a trust, the trust is revocable regardless of language in
the trust to the contrary.
However, many of these States recognize that the grantor cannot unilaterally
revoke the trust if there is a named “residual beneficiary” in the trust
document who would, for example, receive the principal upon the grantor's
death or the occurrence of some other specific event.
Under the modern view, residual beneficiaries are assumed to be created,
absent evidence of a contrary intent, when a grantor names heirs, next of kin,
or similar groups to receive the remaining assets in the trust upon the
grantor's death. In such case, the trust is considered to be irrevocable.
NOTE: The policies regarding grantor trusts may or may not apply in your
particular State. Field offices should consult regional POMS or your regional
office program staff if in doubt.”
POMS SI 01120.200.D.3.
Top Ten Issues Explained in RCCPs, continued
Issue #1 - Grantor Trust Rule – Regional
SI 01120.200: Trusts - General, Including Trusts Established Prior to
1/1/00, Trusts Established with the Assets of Third Parties and Trusts
Not Subject to Section 1613(e) of the Social Security Act
SI BOS01120.200: Grantor Trusts (RTN 263 - 12/2009)
SI CHI01120.200: Revocability of Grantor Trusts -- Chicago Region State Laws
(RTN 413 -- 06/2008)
SI DAL01120.200: Trust Property
SI KC01120.200: Revocability of Grantor Trusts (RTN 8 - 07/2009)
SI NY01120.200: Revocability of Grantor Trusts -New York and New Jersey
State Law s - RTN 386
Top Ten Issues Explained in RCCPs, continued
Issue #1 - Grantor Trust Rule – Regional
201, not
200 like
SI ATL01120.201 Trust Property
C. Residual Beneficiary
A residual beneficiary, while not a current beneficiary of a trust, is named to
receive the benefit of the trust after a specific event occurs, e.g., the death
of the primary beneficiary. The trust would no longer be a grantor trust if
there is a properly named residual beneficiary and may or may not be
revocable according to the language used to name the residual beneficiary.
6. Florida
In Florida, a specific person or entity may be designated. In addition,
wording such as "to my heirs," "to my heirs at law," "to my next of kin," "to
my distributees," "to my relatives" or "to my family" (or language of similar
intent) is sufficient to name a residual beneficiary.
Top Ten Issues Explained in RCCPs, continued
Issue #1 - Grantor Trust Rule – Hiding in
the RCCP for some states
B. PS 00-466 Request for Iowa, Kansas, Missouri, and
Nebraska State Law on Grantor Trusts; SSI Resource
The regional attorney was asked if a State reimbursement provision
in a Medicaid Trust creates a residual beneficiary or creditor status
for the States of Missouri, Kansas, Iowa and Nebraska. All four states
are considered creditors and not beneficiaries. Even if a trust
contains a State reimbursement provision, it would be revocable if
the SSI recipient was the grantor and the sole beneficiary since the
state is a creditor and not a beneficiary.
Top Ten Issues Explained in RCCPs, continued
Issue #2 – Empty or Dry Trust Rule, and the
“Seed Money” Cure
The rule: “In the case of a legally competent, disabled adult, a
parent or grandparent may establish a “seed” trust using a
nominal amount of his or her own money, or if State law
allows, an empty or dry trust. After the seed trust is
established, the legally competent disabled adult may transfer
his or her own assets to the trust or another individual with
legal authority (e.g., power of attorney) may transfer the
individual's assets into the trust.”
POMS SI 01120.203.B.1.f.
Top Ten Issues Explained in RCCPs, continued
Issue #2 – Empty or Dry Trust Rule, and the “Seed
Money” Cure
The WHY of the rule: Restatement (Third) of Trusts § 2 (2007)
(defining a trust as “a fiduciary relationship with respect to
property”) and § 2 cmt. i (providing that “[a] trust cannot be
created unless there is trust property in existence and ascertainable
at the time of the creation of the trust”); accord Restatement
(Second) of Trusts § 74 (requiring tangible trust property for
creation of trust). Accordingly, whether under its case law or under
the long-standing Restatement rule, a trust in the [this
state/jurisdiction] is required to contain property at the time of its
See, for example, PS 10-009 Northern Marianas Islands Law on
Empty Trusts.
Top Ten Issues Explained in RCCPs, continued
Issue #2 – Empty or Dry Trust Rule, and the
“Seed Money” Cure
•Regional POMS – there are none on this issue
•RCC Precedents – there are several
•Practical answer – always include “seed
money” – chicken soup approach
Top Ten Issues Explained in RCCPs, continued
Issue #3 – Medicaid Payback Problems
The POMS Rule: “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(s) 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(s). The State(s) must be listed as the first payee
and have priority over payment of other debts and administrative
expenses except as listed in SI 01120.203B.3.a. The trust must
provide payback for any State(s) that may have provided medical
assistance under the State Medicaid plan(s) and not be limited to
any particular State(s). Medicaid payback may also not be limited to
any particular period of time, i.e. payback cannot be limited to the
period after establishment of the trust.”
POMS SI 01120.203.B.1.h
Top Ten Issues Explained in RCCPs, continued
Issue #3 – Medicaid Payback Problems – Four
Main Errors – See the horrible examples in the
Error #1 - Seek to limit time of payback
• Ohio E. PS 08-075 SSI-Ohio: Review of Sub-Account of
Nathan H~, ~, in the Ohio Community Pooled Flexible
Spending Trust -- Reply Our Reference: 08-060 Your
Reference: SI 2-1-3 OH (Ohio Community);
• Minnesota C. PS 09-021 SSI-Review of the Request for
Reconsideration on the Judith C~ Trust, ~ ACTION Your
Reference: SI 2-1-4 MN (C~) Our Reference: 08-128
Top Ten Issues Explained in RCCPs, continued
Issue #3 – Medicaid Payback Problems – Four
Main Errors – See the horrible examples in the
Error #2 - Medicaid as first payee (we will not include the
“deemed death” sole benefit rule violation here)
• Illinois – pays funeral expenses before Medicaid - X. PS 03141 SSI-Illinois-Review of the Illinois Disability Pooled Trust
and Amendment Action
• California – pays other creditors before Medicaid - B. PS 13058 Special Needs Trust for Keith
Top Ten Issues Explained in RCCPs, continued
Issue #3 – Medicaid Payback Problems – Four
Main Errors – See the horrible examples in the
Error #3 - Payback all states
• Wyoming – limits payback to Wyoming Medicaid only - PS
08-012 Treatment of Trust for SSI Purposes - Michael N. G~
• Illinois – limits payback only to Illinois Medicaid - D. PS 08054 SSI-Illinois-Review of the Ani M. H~ OBRA Pay Back Trust,
SSN ~ - REPLY Your Reference: S2D5G6, SI 2-1-3 IL (H~) Our
Reference: 08-028
Top Ten Issues Explained in RCCPs, continued
Issue #3 – Medicaid Payback Problems – Four
Main Errors – See the horrible examples in the
Error #4 - Payback for all time
• Texas – only from date of trust forward - PS 05-166 SSIReview of the D~ R~ Trust, ~-REPLY Your Ref.: S2D5G6, SI 2-13 (R~) Our Ref.: 05-0097;
• Ohio - same - D. PS 08-150 SSI - Ohio -- Review of Ashley E.
D~ Irrevocable Special Needs Trust, ~ - REPLY; Your
Reference: SI-2-1-3-OH (D~); Our Reference: 08-0138
Top Ten Issues Explained in RCCPs, continued
Issue #4 – Sole Benefit
The POMS Rule: “Under the special needs trust exception, the trust
must be established for and used for the benefit of the disabled individual.
SSA has interpreted this provision to require that the trust be for the sole
benefit of the individual, as described in SI 01120.201F.2. Other than trust
provisions for payments described in SI 01120.201F.2.b. and SI
01120.201F.2.c., any provisions that:
• provide benefits to other individuals or entities during the disabled
individual's lifetime, or
• allow for termination of the trust prior to the individual's death and
payment of the corpus to another individual or entity (other than the
State(s) or another creditor for payment for goods or services provided
to the individual),
will result in disqualification for the special needs trust exception.”
POMS SI 01120.203.B.1.e
Top Ten Issues Explained in RCCPs, continued
Issue #4 – Sole Benefit
” Consider a trust established for the sole benefit of an individual if
the trust benefits no one but that individual, whether at the time
the trust is established or at any time for the remainder of the
individual's life.”
Typical error: “if beneficiary has been found ineligible for benefits,
treat him as though he had died, and distribute to the remainder
• Wisconsin example - A. PS 09-123 Wisconsin - SSI Review of
Special Needs Trust for Paul J. V~ Your Ref: S2D5G6 SI-2-1-3 WI
Our Ref: 08-0184
• Colorado - A. PS 11-143 Treatment of Amendments to Trust for SSI
Purposes (Ronald S~)—REPLY
Top Ten Issues Explained in RCCPs, continued
Issue #5 – Null and Void Clauses
The POMS Rule: State law determines the necessary elements
of a legally valid trust. Commonly, trust documents contain
“null and void” or “savings” clauses (hereafter “null and
void”). These null and void clauses operate to cure defects in a
trust and preserve the remaining provisions. They prevent the
trust from being determined invalid by removing the
offending sections from consideration…For SSI resource
counting purposes, a null and void clause does not cure an
otherwise defective trust instrument.” [Dated 12-4-2012]
POMS SI 01120.227 Null and Void Clauses
Top Ten Issues Explained in RCCPs, continued
Issue #5 – Null and Void Clauses
• The materials contain seven RCCPs that have not been
withdrawn, interpreting state law, that null and void clauses
cure major defects in SNTs
• Depends on the type of defect – a null and void clause
cannot create a necessary clause where one doesn’t exist,
but only make inoperative an offending clause – e.g., cannot
insert a Medicaid payback where none exists
• Speaker’s opinion only: the national POMS may be
vulnerable to legal challenge since the legitimacy of a state
rule on null and void clauses is a state matter, like the rules
on DWT or dry trusts, not a substantive SSI/Medicaid
eligibility rule in the federal statutes or regs
Top Ten Issues Explained in RCCPs, continued
Issue #6 – Nunc pro Tunc – SNT Amendment
Sometimes yes, sometimes no – Whether a judge has the
right to amend a trust nunc pro tunc (“then for now”), i.e.,
with retroactive effect, depends on state law, and state law
often depends on whether the amendment is substantive or a
scrivener’s error. See the six RCCP decisions in the materials.
Practical Pointer – always report your trust to SSA – SNT
created in 2004, “not disclosed” to SSA; SSA field office found
out in 2010, and SNT is defective having a funeral expense
payment prior to Medicaid. Tennessee state law does not
permit judges to enter nunc pro tunc orders. Large
overpayment resulted.
Top Ten Issues Explained in RCCPs, continued
Issue #7 – Non-assignable funds
Some income streams cannot be assigned to an SNT
The POMS Rule: Certain payments are not assignable by law and, therefore, are income
to the individual entitled to receive the payment under regular income rules. They may
not be paid directly into a trust, but individuals may attempt to structure trusts so that
it appears that they are so paid. Important examples of non-assignable payments
• Temporary Assistance for Needy Families (TANF);
• Railroad Retirement Board-administered pensions;
• Veterans pensions and assistance;
• Federal employee retirement payments (CSRS, FERS) administered by the Office of
Personnel Management;
• Social Security title II and SSI payments; and
• Private pensions under the Employee Retirement Income Security Act (ERISA)(29
U.S.C.A. section 1056(d)).
POMS SI 01120.201.J.1.c.
Top Ten Issues Explained in RCCPs, continued
Issue #7 – Non-assignable funds
Some income streams cannot be assigned to an SNT
RCCPs: In the materials there are four Precedents that deal with nonassignable funds – two confirming that you cannot assign a Civil Service
Pension, one that confirms you cannot assign a state Fireman’s Pension,
and one that attempted to assign a ERISA pension plan received by a
spouse in a divorce.
The effect of the non-assignment of the income – too much nonassignable income cannot be fixed.
Practical pointer regarding divorce settlements – take the cash and assets,
not the ERISA pension, if possible.
Top Ten Issues Explained in RCCPs, continued
Issue #8 – Assignable, but only if…
Some income streams, such as family law payments, can be
assigned to an SNT but must be done by irrevocable court
order, but
• are permitted in SNTs specifically by the POMS, but only if
1) state law permits trusts to receive support payments, and
2) the assignment is “irrevocable.”
• Cannot be done solely by agreement of the parties
See the Child Support SNTs (six RCCPs) and Alimony SNTs
(three RCCPs) on the topic in the materials.
Top Ten Issues Explained in RCCPs, continued
Issue #9 – Assignable, but only…
Once - the potential problem with structured settlement
Nine RCC Precedents in the materials indicate SNTs can be
funded with structured settlement annuities
Problem – subsequent re-assignment – If first irrevocably
assigned to an individual plaintiff or a guardianship, and then
the SNT is created, the terms of the documents and state law
may prevent a second irrevocable re-assignment to the SNT of
the individual. See IllinoisA. PS 07-034 SSI-IL.-Review of
Annuity Payments to the Virginia L~ Irrevocable Special Needs
Top Ten Issues Explained in RCCPs, continued
Issue #10 – Assignable, but…
Not Forever – another potential problem with structured
settlement annuities.
Minors and Annuities – If SNT funded by annuities for
minor, under some state laws, the minor-now-adult will be
entitled to the payments directly at age 18, and therefore will
be countable income – see Illinois C. PS 08-061 SSI-IllinoisReview of Annuity Payments for Krysten M, and Indiana A. PS
09-015 SSI - Review of the Trust and Annuity for Savanna R. W
Other random, interesting options in the
#1 - Private annuities may be alive and well in “SSI Land” if not in
“Medicaid World”
• Recall that Section 1634 of the SSAct links receipt of $1 of SSI to
automatic Medicaid eligibility
• Medicaid single premium annuities for Medicaid applicants were
restricted by the DRA
• Private single premium annuities have been approved by Atlanta RCC
- see Florida A. PS 05-078 Request for Legal Opinion Number Holder Eleanor G~, SSN ~
• $50,000 given by claimant to sister
• In exchange, a private annuity created where sister paid $5 per month and
then a balloon payment 10.24 years later (prior to life expectancy)
• This was fair market value for the resource transfer
Other random, interesting options in the
#2 - Personal Service Contracts are allowed – but NOT if you violate the
“pigs v. hogs” standard
• 72 year old in nursing home in Florida
• Transfers $37,000 of mutual funds and IRAs to attorney-niece in New
Jersey to provide laundry list of services at $20 per your
• One-page contract was not signed by attorney-niece – “she who
represents herself is a fool…”; contract not valid
• Contract could not be performed as written to justify 312 hours per
year of phone calls – therefore, no fair market value
• Contrasted this agreement with excellent approved language in a
New Jersey case
• There are specific POMS that would permit this
if done right, see POMS SI 01150.005.D.4
Other random, interesting options in the
#3 – Not all conservatorship/guardianship accounts are “countable
The POMS rule – SI 01140.215 – “If State law requires that funds in a
conservatorship account be made available for the care and maintenance
of an individual, we assume [presume], absent evidence to the contrary,
that funds in such an account are available for the individual's support and
maintenance and are, therefore, that individual's resource….
Other State statutes or case law may specifically prohibit the use of funds
held in the conservatorship account for general support of the individual
in certain circumstances….
If the court has restricted use of funds in the account at the individual's or
his or her agent's request, obtain the individual's allegation as to whether
the restriction(s) can be removed by request or petition.”
Other random, interesting options in the
#3 – Not all conservatorship/guardianship accounts are “countable
The POMS rule, continued – SI 01140.215 – “Examples of evidence to the
contrary include (but are not limited to):
• restrictive language in the court order that established the account or in a
subsequent court order;
• State or local procedural rules for the withdrawal of funds from the account; and
• local court practices regarding withdrawal of funds.”
• Restricted to medical only - Michigan PS 00-239 Conservatorship/Blocked
Account for Melanie G~
• All access to funds blocked by specific court order until age 18 – Arizona PS
12-016 Julia Conservatorship Account
• Presumption not overcome – Illinois PS 00-180 Blocked Account in Illinois as
SSI Resource: Duane P. C~, Jr., ~
Other random, interesting options in the
#4 – UTMA/UGMA transfers by parents to SNTs may be okay
General rule – parents may transfer – but only to an SNT
• Ohio PS 04-221 SSI-Ohio-Review of the Scott E. K~ Special Needs Trust
• Minnesota PS 06-091 Opinion Request Transfer; Treatment of Trust for SSI Resource
Purposes (Ryan A. S~)
• Minnesota – NO SEED TRUST REQUIRED -PS 07-125 SSI-Minnesota-Review of 3
versions of the David L. H~ Special Needs Trust SSN: ~
But parents must comply with UTMA law, and cannot use “Nunc Pro
Tunc” phrase in document which is restricted to court orders only
• PS 04-321 Attempt to Transfer Property Pursuant to the Uniform Transfers to Minors
Act ("UTMA") for Violeta and Salvador M~, Respectively ~/~
Other random, interesting options in the
#5 – Prepaid Tuition Contracts – may or may not be “countable
resource” depending on contract refund terms
Two Issues –
1) Is the money refundable under the circumstances?
2) Are there restrictions on the use of the refunded money?
See Ohio PS 00-195 Ohio Tuition Trust for Robert D. D~ Result – contract said money can be refunded if the person becomes
disabled, and if refunded, there are no restrictions on its use
1. Understanding - Regional Chief Counsel Precedents can
flesh out and complete your understanding of the
application of national and regional POMS
2. Preparation - The order of researching the viability of a
special needs plan should proceed along these lines:
a) Look for and understand national POMS
b) Check for Regional POMS on the same or similar topic
c) Then check for Regional Chief Counsel Precedents
3. Creation - If you don’t find a RCCP and you feel there
ought to be one, contact the Regional Chief Counsel to
propose one
Thanks for listening!
David Lillesand, Esq.
Lillesand, Wolasky & Waks, P.L.
901 Chestnut Street
Clearwater FL 33756
[email protected]
(727) 330-7895
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