on First and Third party SNTs, non-SNT Asset Transfers and Resource Exclusions

1. SSI Regional Chief Counsel Precedents on First and Third party SNTs, non-SNT Asset Transfers and Resource Exclusions March, 2014 David Lillesand, Esq. David@LillesandLaw.com

2. 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 But… • 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)

3. 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

4. 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.

5. 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 – sometimes • In Federal Court - always

6. Where to find the RCC Precedents Not here! Here!!

7. 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 one-paragraph SUMMARY of each case • Most helpfully, have hyperlinks to the actual text of the full RCC Precedent

8. 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 betweenNational POMS and RCCPs

9. 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 resource • January 1, 2000 – Important date - Be aware of decisions on planning before or after imposition of transfer penalty

10. 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 jurisdictions • Children become sui juris – be aware of ability of child to undo your plan, or state law so doing

11. 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

12. 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.

13. 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 necessary.” POMS SI 01120.200.B.8.

14. Top Ten Issues Explained in RCCPs, continued Issue #1 - Grantor Trust Rule – Heart of the Rule “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.

15. Top Ten Issues Explained in RCCPs, continued National POMS Issue #1 - Grantor Trust Rule – Regional POMS 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 Regional POMS

16. Top Ten Issues Explained in RCCPs, continued Issue #1 - Grantor Trust Rule – Regional POMS 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. Regional POMS NOTE: Found After subsec. 201, not after 200 like the others

17. 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 Issue 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. RCCP

18. 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.

19. 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 creation. See, for example, PS 10-009 Northern Marianas Islands Law on Empty Trusts.

20. 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

21. 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

22. Top Ten Issues Explained in RCCPs, continued Issue #3 – Medicaid Payback Problems – Four Main Errors – See the horrible examples in the RCCPs 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); • MinnesotaC. 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

23. Top Ten Issues Explained in RCCPs, continued Issue #3 – Medicaid Payback Problems – Four Main Errors – See the horrible examples in the RCCPs 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 03-141 SSI-Illinois-Review of the Illinois Disability Pooled Trust and Amendment Action • California – pays other creditors before Medicaid - B. PS 13-058 Special Needs Trust for Keith

24. Top Ten Issues Explained in RCCPs, continued Issue #3 – Medicaid Payback Problems – Four Main Errors – See the horrible examples in the RCCPs 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 08-054 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

25. Top Ten Issues Explained in RCCPs, continued Issue #3 – Medicaid Payback Problems – Four Main Errors – See the horrible examples in the RCCPs Error #4 - Payback for all time • Texas – only from date of trust forward - PS 05-166 SSI-Review of the D~ R~ Trust, ~-REPLY Your Ref.: S2D5G6, SI 2-1-3 (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

26. 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

27. 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 beneficiaries.” • Wisconsinexample - 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

28. 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

29. 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

30. 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.

31. 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 include: • 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.

32. 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 non-assignable 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 non-assignable income cannot be fixed. Practical pointer regarding divorce settlements – take the cash and assets, not the ERISA pension, if possible.

33. 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.

34. Top Ten Issues Explained in RCCPs, continued Issue #9 – Assignable, but only… Once - the potential problem with structured settlement annuities. 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 Trust

35. 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 IllinoisC. PS 08-061 SSI-Illinois-Review of Annuity Payments for KrystenM, and IndianaA. PS 09-015 SSI - Review of the Trust and Annuity for Savanna R. W

36. Other random, interesting options in the RCCPs #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

37. Other random, interesting options in the RCCPs #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 thisif done right, see POMS SI 01150.005.D.4

38. Other random, interesting options in the RCCPs #3 – Not all conservatorship/guardianship accounts are “countable resources” 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.”

39. Other random, interesting options in the RCCPs #3 – Not all conservatorship/guardianship accounts are “countable resources” 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.” RCCPs • 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., ~

40. Other random, interesting options in the RCCPs #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 ~/~

41. Other random, interesting options in the RCCPs #5 – Prepaid Tuition Contracts – may or may not be “countable resource” depending on contract refund terms Two Issues – • Is the money refundable under the circumstances? • 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

42. SUMMARY • Understanding - Regional Chief Counsel Precedents can flesh out and complete your understanding of the application of national and regional POMS • Preparation - The order of researching the viability of a special needs plan should proceed along these lines: • Look for and understand national POMS • Check for Regional POMS on the same or similar topic • Then check for Regional Chief Counsel Precedents • Creation - If you don’t find a RCCP and you feel there ought to be one, contact the Regional Chief Counsel to propose one

43. David Lillesand, Esq. Lillesand, Wolasky & Waks, P.L. 901 Chestnut Street Clearwater FL 33756 David@LillesandLaw.com www.SocialSecurityTampaBay.com (727) 330-7895 Thanks for listening!