[This article was originally printed in the Straight Word, a publication of the Burlington County Bar Association.]
FACT GUIDE FOR NATIONAL TRUST TRAINING: THE IMPACT ON SPECIAL NEEDS TRUSTS
by Thomas D. Begley, Jr., CELA
The Social Security Administration (SSA) has divided the country into ten Regions. Historically, each Region has had one individual primarily in charge of reviewing special need trusts. Trusts in New Jersey are reviewed by the New York Region. Trusts in Pennsylvania are reviewed by the Philadelphia Region. About a year ago, SSA decided to train additional individuals to review these trusts. A team of seven SSA trust experts developed a training manual known as the “Fact Guide for National Trust Training” (the Guide). While the Guide was dated December 16, 2013, it was not released until April 23, 2014. The Guide probably raises more questions than it answers. These are particularly important as to how first-party special needs trusts will be reviewed by the new trust reviewers. Caution: train wreck ahead.
On October 1, 1993, President Clinton signed OBRA ’93, a portion of which dealt with the establishment of special needs trusts for individuals with disabilities. The statute stated that assets contained in clearly-defined trusts were not to be counted as assets of the individual for Medicaid eligibility purposes and transfers to those trusts were exempt from the Medicaid transfer of asset penalties. The language in the statute is as follows: “A trust containing the assets of an individual under age 65 who is disabled (as defined in §1382c(a)(3) of this Title) and which is established for the benefit such individual by a parent, grandparent, legal guardian of the individual, or a court, if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter.” The statute also contained language authorizing pooled trusts operated by non-profit organizations so long as a separate account is maintained for each beneficiary, but for purposes of investment and management of funds the trust pools these accounts, and the accounts are established solely for the benefit of the individual by a parent, grandparent, legal guardian of such individual, by the individuals, or by a court. The section further provides that to the extent 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.”
In 1994, CMS (then known as HCFA) issued HCFA Transmittal 64. Essentially, this document repeated the language in the statute with respect to special needs trusts. In 1999, Congress again acted by adopting the Foster Care Independence Act and essentially applied the provisions of 42 U.S.C. §1396p(d)(4)(A) & (C) to SSI. Subsequently, SSA issued guidance in the Program Operating Manual System (POMS). The most recent revision is effective May 14, 2013.
Purpose and Outline of the Guide
The purpose of the Guide is to train the new SSA trust reviewers. The Guide is divided into eleven sections:
- Key players involved in a trust
- Trust policy
- Basic trust identifiers
- Revocable vs. irrevocable
- Common types of trusts
- Exceptions to counting self-funded trusts as resources
- Helpful reference tools to determine if the trust is a countable or excluded resource
- Additional trust considerations
- Role of the public/attorneys
- Reminder items and documentation
Conflicts Between The Current Law And The Guide
The first conflict appears to be in Section F 1 b of the Guide that states that additions/augmentations to a trust at/after age 65 would violate the rule that requires assets to be transferred prior to the individual attaining age 65. While the Guide sets forth the exceptions, including interest, dividends, and other earnings of the trust, it does not mention payments under a structured settlement. The POMS specifically authorizes such payments after age 65, so long as the structure was in place prior to age 65.
Section F 1 d conflicts with the POMS in that the Guide provides that the special needs trust exception does not apply if the trust allows for termination of the trust prior to the individual’s death and payment of the principal/corpus to an individual or entity (other than the state). While this is not a serious conflict, the POMS provide that a special needs trust may contain an early termination provision, so long as after repayment to the State for all medical assistance previously paid no entity other than the trust beneficiary may benefit from early termination. This is less a conflict than language that is likely to cause confusion, unless clarified.
The biggest problem in the Guide section entitled “Who can establish the trust?” The Guide states creation of the trust may be required by a court order. This is consistent with the POMS. It would appear from this language that the court order can incorporate the trust by reference, so long as the word “required” is used in the order. Good practice would dictate that the same word be used in the trust document. The potential pitfall is who may petition the court to create a trust for the beneficiary? The Guide states that if an “appointed representative” petitions the court to create a trust for the beneficiary, the trust would be invalid. Normally, either the Personal Injury attorney or the Trust attorney petitions the court for approval of the trust. Does this render the trust invalid? If so, who else could petition the court for approval? Would a guardian ad litem meet the tests? How about the trustee? The attorney for the defendant? Or is there any other person? If a homeless person was offered $100 to petition the court, would that make the homeless person an “appointed representative” and render the trust invalid? The author has requested clarification from SSA and is awaiting a response.
Medicaid Payback/Administration Fees and Costs
The final area of conflict is Medicaid reimbursement. The Guide states that “the only items that may be paid prior to the Medicaid repayment on the death of the beneficiary of the trust are taxes due from the trust at the time of death and court filing fees associated with the trust. This clearly violates the POMS, which states that upon the death of the trust beneficiary the trust may pay prior to Medicaid reimbursement taxes due from the trust to the State’s or federal government because of the death of the beneficiary AND reasonable fees for administration of the trust estate such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with the termination and wrapping up of the trust.
With respect to pooled trusts, the same conflicts appear to arise.
While the purpose of the Guide is to train more field workers to be available to review trusts with certain expertise, it would appear that there will be a tremendous amount of confusion if those newly-trained field workers are not also aware of the language contained in the statutes, HCFA Transmittal 64, and the POMS.
 42 U.S.C. §1396p(d)(4)(A) & (C).
 42 U.S.C. §1396p(d)(4)(A).
 42 U.S.C. §1396p(d)(4)(C).
 HCFA Transmittal 64 §3259.7 A & B.
 42 U.S.C. §1382b.
 42 U.S.C. §1382b(c)(1)(C)(iv) & 42 U.S.C. §1382b(e)(5).
 POMS SI 01120.203.
 POMS SI 01120.203.B.1.c.
 POMS SI 01120.199.F.
 Section F 1 e 3.
 POMS SI 01120.203.B.1.h. and 203B.3.a.