In administering a special needs trust, it is crucial that the trustee not advance cash to the beneficiary. Historically, beneficiaries have sent their bills to the trustee for payment. An easier way to accomplish this objective is to obtain a credit card for the trust beneficiary. If the beneficiary has good credit, the card can be obtained in the beneficiary’s name. If the beneficiary does not have good credit or is a minor or is incapacitated, a credit card could be obtained in the name of a family member. The process of determining distributions from a special needs trust should begin by a trustee and beneficiary and/or beneficiary’s family developing a budget. The budget would be broken into three main categories.
One would be shelter expenses. The second would be transportation, and the third would be personal items. Generally, trustees should avoid paying for in-kind support and maintenance (ISM). ISM is defined as food and shelter. There are ten items of shelter expense that constitute ISM. Other categories of shelter expense do not count as ISM. The ten items that do constitute ISM are: mortgage payments, property insurance (if required by the mortgage holder), rent, gas, electricity, heating fuel, water, sewer, garbage collection service and real estate taxes. Frequently, the trustee must pay these expenses because the beneficiary simply does not have sufficient income to do it. Payment of these expenses results in a reduction of the SSI payment of one-third or one-third plus $20, depending on living arrangements. Transportation expenses include the purchase of a vehicle and maintenance including gasoline. It is easier for the beneficiary to get a credit card and pay for gas by a credit card than it is to pay cash. There are a whole host of personal items that can be more easily paid for by credit card than by cash or by sending bills to the trustee for payment.
During the last year, the POMS were changed to permit a special needs trust to reimbursement a third party for goods or services purchased on behalf of the trust beneficiary. This makes it easy for a parent to use a credit card to buy items for the beneficiary and have the credit card bills sent to the trustee for payment. However, there are certain rules that must be strictly followed. If it is impossible for the beneficiary or a family member to obtain a credit card due to bad credit, a secured credit card should be considered. Under a secured credit card, a deposit is made with the credit card issuer and an agreement signed so that if the credit card is not paid, the issuer can obtain payment through the funds on deposit to secure the card. The agreement must be carefully drafted to insure that under no circumstances will the beneficiary ever receive the funds on deposit with the credit card issuer. Rather, those funds would be returned to the trustee.
Credit Cards
In appropriate cases, the trust beneficiary, if an adult and competent, should obtain a credit card. The credit card should have a low limit so that it is not abused. Credit cards are loans, and loans are not considered income for SSI purposes.[1] The POMS state, “If a trust pays a credit card bill for the trust beneficiary, whether the individual receives income depends on what was on the bill. If the trust pays for food or shelter items on the bill, the individual generally will be charged with in-kind support and maintenance (ISM) up to the Presumed Maximum Value (PMV). If the bill includes non-food, non-shelter items, the individual usually does not receive income as a result of payment, unless the item would not be a totally or partially excluded non-liquid resource the following month.”[2] The trustee must examine each credit card bill to determine a number of factors:
The trustee may refuse to pay an inappropriate credit card bill or the inappropriate portion of a credit card bill.
In some situations, the beneficiary of a trust utilizes a credit card for items that violate the sole benefit rule. The trust may refuse to pay the bill. For certain beneficiaries, the trustee may want to negotiate a payment plan so that the beneficiary can make payments from his or her Social Security income. If negotiations fail, the trustee should petition the court prior to paying for a debt incurred for purchases made in violation of the sole benefit rule. Additionally, the credit card should not be used to pay for items that would be ISM, if this can be avoided.
If there is a third-party special needs trust, distributions for payment of credit card balances where the beneficiary has purchased items for the benefit of others do not violate the sole benefit rule. The trustee may want to seek reimbursement for such charges in appropriate cases.
Gift Cards/Gift Certificates
Trustees love to give trust beneficiaries gift cards or gift certificates. However, gift cards and gift certificates are considered cash equivalents. If a gift card/certificate can be used to buy food or shelter (e.g., restaurant, grocery store or VISA gift card), it is unearned income in the month of receipt. Any unspent balance on the gift card/certificate is a resource beginning the month after the month of receipt. If the store does not sell food or shelter items (e.g., book store or electronic store), but the card does not have a legally enforceable prohibition on the individual selling the card for cash, then it is still unearned income.[3] Best practice dictates the use of credit cards for beneficiaries of special needs trusts rather than gift cards.
[1] 20 C.F.R. 416.1103(f); POMS SI 01120.201 I 1 d.
[2] POMS SI 01120.201.I.1.d.
[3] POMS SI 01120.201 I 1 e.
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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.
Legislative History
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.[1] 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.”[2] 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.”[3]
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.[4] In 1999, Congress again acted by adopting the Foster Care Independence Act[5] and essentially applied the provisions of 42 U.S.C. §1396p(d)(4)(A) & (C) to SSI.[6] Subsequently, SSA issued guidance in the Program Operating Manual System (POMS). The most recent revision is effective May 14, 2013.[7]
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:
Conflicts Between The Current Law And The Guide
Structured Settlements
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.[8]
Early Termination
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[9] may benefit from early termination. This is less a conflict than language that is likely to cause confusion, unless clarified.
Court-Established Trusts/Petitions
The biggest problem in the Guide section entitled “Who can establish the trust?”[10] 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,[11] 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.
Conclusion
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.
[1] 42 U.S.C. §1396p(d)(4)(A) & (C).
[2] 42 U.S.C. §1396p(d)(4)(A).
[3] 42 U.S.C. §1396p(d)(4)(C).
[4] HCFA Transmittal 64 §3259.7 A & B.
[5] 42 U.S.C. §1382b.
[6] 42 U.S.C. §1382b(c)(1)(C)(iv) & 42 U.S.C. §1382b(e)(5).
[7] POMS SI 01120.203.
[8] POMS SI 01120.203.B.1.c.
[9] POMS SI 01120.199.F.
[10] Section F 1 e 3.
[11] POMS SI 01120.203.B.1.h. and 203B.3.a.
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