Persons with disabilities rely on special needs trusts (SNTs) to pay for goods and services that enhance their quality of life. The rules that govern SNTs primarily come from the Social Security Administration (SSA). In 2018, SSA fundamentally altered its rules on how to establish and administer SNTs. This article reviews these changes and how special needs practitioners should respond.
As of January 2019, more than 7 million Americans were receiving Supplemental Security Income (SSI), a needs-based cash benefit available to certain persons with disabilities, which is intended to pay for recipients’ food and shelter. In 2019, the federal benefit rate for a single SSI recipient is $771 per month. Eligibility for SSI is essential for persons with disabilities: Often it is their only source of funds to pay for food and shelter and is a gateway program for obtaining other public benefits such as Medicaid. However, SSI is a means-tested public benefit. To qualify for SSI, recipients must meet strict financial eligibility criteria. To be eligible for SSI in 2019, a single person cannot have more than $2,000 in countable assets and a couple cannot have more than $3,000 in countable assets. Income criteria also apply.
For decades, the SNT has been the primary planning tool to protect persons with disabilities. Funds held in an SNT are not counted as a resource of the SNT beneficiary but may be used (at the trustee’s discretion) for the beneficiary’s benefit. A properly established and administered SNT maintains the beneficiary’s eligibility for means-tested public benefits while augmenting the meager standard of living afforded to the beneficiary by said benefits.
SSA is the federal agency that administers SSI. The federal policies governing SNTs are documented in the agency’s Social Security Program Operations Manual System (POMS). SSA describes the POMS as “a primary source of information used by Social Security employees to process claims for Social Security benefits.” A public version of the POMS is available online. Much of the implementation of SSI, and rules involving SSA’s evaluation of SNTs and SNT distributions in particular, is conducted as agency policy as set forth in the POMS and below the level of federal legislation or administrative rulemaking. Thus, the POMS has become the de facto law on how SNTs are evaluated by the federal government, many state agencies, and often, local probate courts.
In the context of SNTs, the POMS provides SSA field office personnel with operating instructions on evaluating trusts for eligibility purposes. As the U.S. Court of Appeals for the Eighth Circuit noted, “The POMS provisions demonstrate valid reasoning; that is, the detailed process required for establishing qualifying special-needs trusts contained in the POMS is consistent with ‘Congress’s command that all but a narrow class of an individual’s assets count as a resource when determining the financial need of a potential SSI beneficiary.’” In the POMS revisions adopted in April 2018, SSA substantially revamped its policies on many aspects of SNT establishment and administration. This article describes these changes and how special needs practitioners should adjust their practices to conform to the new policies on establishing and administering SNTs.
Familiarity with the POMS is vital for providing effective advocacy for SSI recipients, especially in cases involving SNTs. A qualifying safe-harbor SNT is not considered a countable resource for purposes of SSI eligibility, and distributions from an SNT may be structured to avoid being counted as income to the SSI recipient. However, in SSA’s world, SNTs are not commonplace and field office workers may not be aware of or may misapply law or policies. An on-point POMS citation can often be helpful in persuading field office workers that an SNT meets the POMS requirements.
In April 2018, SSA released major revisions to four POMS sections relevant to SNT establishment and administration:
1. POMS SI 01120.200, Information on Trusts, Including Trusts Established Prior to January 01, 2000, Trusts Established with the Assets of Third Parties, and Trusts Not Subject to Section 1613(e) of the Social Security Act;
2. POMS SI 01120.201, Trusts Established with the Assets of an Individual on or after 01/01/00;
3. POMS SI 01120.202, Development and Documentation of Trusts Established on or After 01/01/00; and
4. POMS SI 01120.203, Exceptions to Counting Trusts Established on or after January 1, 2000.
Additionally, in March 2018, SSA revised POMS SI 01130.470, Achieving a Better Life Experience (ABLE) Accounts, to include a provision relevant to SNT establishment and administration.
While some of the changes incorporate SSA’s previously published administrative messages (AMs) or emergency messages (EMs) or memorialize typical agency practice, some of the revisions represent substantive changes or new policies. This article reviews the POMS revisions in terms of the following in order of importance:
1. Substantive changes and new policies;
2. Incorporation of Supplemental Security Income Trust Monitoring System protocols and pooled trust precedents;
3. Incorporation of previously published administrative and emergency messages; and
4. Articulations of prevailing agency policy.
II. Substantive Changes and New Policies
A. Revamping of SSA’s Sole Benefit Rule to a More Relaxed Primary Benefit Standard
One of the biggest (if not the biggest) change to the POMS is SSA’s relaxation of its sole benefit rule for first-party SNTs to a much more reasonable primary benefit standard. SSA has long stated that a first-party SNT (i.e., a trust established with funds belonging to the trust beneficiary) must be established “solely for the benefit of” the beneficiary. SSA policy as set forth in the POMS defines “sole benefit” in uncompromising terms:
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.
The POMS sets forth two exceptions for disbursements that do not violate the sole benefit rule. First, SNT trustees are permitted to pay expenses related to trust administration (e.g., reasonable fees to trustees or for fees for professional investment or legal advice). Second, SNT trustees may make limited disbursements for certain third-party payments.
It is difficult to determine how SSA conceived of its strict sole benefit rule based on the law as written. The federal law that created the safe-harbor exception exempting SNTs from being counted as a resource for SSI and Medicaid eligibility requires merely that an individual SNT be “established for the benefit of” the beneficiary with a qualifying disability. The statutory exception for pooled SNTs requires that an individual account in the pool be “established solely for the benefit of” the beneficiary. Based on these two phrases, SSA determined that all first-party SNTs (whether individual or pooled) must be established for the sole benefit of the beneficiary with a disability. This is true even though Title 42 U.S.C. § 1396p(d)(4)(A) (individual SNTs) makes no mention of a sole benefit standard and § 1396p(d)(4)(C) (pooled SNTs) appears to refer to the individual beneficiary’s account being used solely for him or her, not for any other pooled SNT beneficiary. Unfortunately, SSA went in a different direction in setting its policy.
The sole benefit rule has been plagued by confusing articulations of policy, inconsistent enforcement, and sudden changes in interpretation that dramatically affect the type of SNT distributions SSA allows. SSA has made several attempts to define what distributions are and are not for the beneficiary’s sole benefit. The most notorious was in 2012, when SSA changed the POMS to substantially limit the types of disbursements allowed under the rule (e.g., refusing to allow reimbursements to third parties who purchased goods and services for the beneficiary). The 2012 changes to the POMS were later rescinded.
Prior to the revised POMS, a point of contention with many SSA field offices concerned the sole benefit rule in cases in which purchases were made to benefit the beneficiary but also provided some collateral benefit to the beneficiary’s family and friends. For example, if an SNT trustee purchased a vehicle to be used by the beneficiary, family and friends likely accompanied the beneficiary while he or she used the vehicle, even if the beneficiary did not require their assistance. Or the SNT trustee purchased household items, such as furniture or electronics, that other household members or friends used. Such disbursements became a point of inquiry during SSI re-eligibility determinations. Some SSA field offices took the position that any collateral benefit (no matter how minor) violated SSA’s sole benefit rule and was treated as an uncompensated transfer that resulted in SSI overpayments, thus affecting the beneficiary’s SSI eligibility.
In the revised POMS, SSA substantially relaxed its policy, modifying the sole benefit rule by directing agency personnel to evaluate distributions under a more reasonable primary benefit standard. The revised POMS states:
The key to evaluating [the sole benefit rule] is that, when the trust makes a payment to a third party for goods or services, the goods or services must be for the primary benefit of the trust beneficiary. You should not read this so strictly as to prevent any collateral benefit to anyone else. For example, if the trust buys a house for the beneficiary to live in, that does not mean that no one else can live there, or if the trust purchases a television, that no one else can watch it. On the other hand, it would violate the sole benefit rule if the trust purchased a car for the beneficiary’s grandson to take her to her doctor’s appointments twice a month, but he was also driving it to work every day.
The new primary benefit interpretation of sole benefit expressly allows other people to benefit from an SNT disbursement as long as the beneficiary receives the primary benefit. Under the revised POMS, as long as an SNT disbursement can be justified as primarily benefitting the beneficiary, it meets the sole benefit criterion, even if it also conveys collateral benefits to others (e.g., to a nonbeneficiary living with the beneficiary in a trust-purchased house). There is still a limitation on what can be distributed under the new rule. For example, a disbursement may violate the sole benefit rule if the purchased good or service is used disproportionately by nonbeneficiaries, as shown by the example of the car purchased by the trust for the grandmother but used most often by her grandson for his work commute.
The revised POMS does not change SSA rules concerning beneficiary income. Distributions of cash paid from a trust directly to a beneficiary are considered unearned income and reduce the beneficiary’s SSI benefits dollar for dollar, after a $20 income disregard. For example, if the SNT trustee distributes $500 in cash to the beneficiary, the beneficiary will lose $480 in SSI.
The other type of income that is affected by SNT disbursements is called “in-kind support and maintenance” (ISM). An SNT distribution that results in the beneficiary receiving food or shelter is considered outside ISM. Even though outside ISM reduces an SSI recipient’s SSI benefits, it does not reduce them dollar for dollar as unearned income does. Instead, the maximum reduction is subject to the presumed maximum value rule (PMV), which is a one-third reduction of the federal benefit rate plus the $20 income disregard. For example, if the SNT trustee pays $1,000 a month for the beneficiary’s rent, the beneficiary’s SSI benefits in 2019 will be reduced by $277 a month (SSI federal benefit rate of $771 divided by 3 equals $257 plus $20 income disregard equals a $277 reduction in the SSI amount).
However, SNT disbursements made directly to third-party vendors that result in the SNT beneficiary receiving goods or services other than food or shelter typically do not count as income to the beneficiary and do not affect SSI eligibility. For example, if an SNT trustee pays $100 per month directly to a cell phone company to pay the beneficiary’s cell phone bill, it has no impact on the beneficiary’s SSI eligibility. SNT trustees therefore usually structure disbursements by purchasing goods or services for the beneficiary’s benefit directly from third parties.
It could be argued that these purchases violate SSA’s sole benefit rule because they convey a collateral benefit to the vendor by receiving payment for goods or services rendered. However, the POMS includes a specific exception to the sole benefit rule for payments made from an SNT to a third party that results in the receipt of goods or services by the beneficiary. This exception, the unearned income reduction, and the ISM reduction continue unchanged from prior POMS iterations and remain in the revised POMS.
The revised POMS allows claimants and advocates to argue against overzealous application of the sole benefit rule and acknowledges the practical realities of the lives of SNT beneficiaries. Interpreting the rule to require that trust purchases convey no collateral benefits was unreasonable and required SNT beneficiaries to go to unnatural lengths to exclude third parties from tangential benefits that did not affect the beneficiary’s use or enjoyment of the purchased item. Under the revised POMS, SSA field offices have discretion to dispute transactions that, fairly considered, benefit third parties more than the trust beneficiary while ignoring benefits that are collateral. This is a big win for people with disabilities and a big win for common sense.
B. Express Allowance of Payment of Companion Services and Caregiving Expenses
SSA has long had issues with SNTs that include provisions for paying for companion care services and caregiving. Arguably, these payments were permitted under the one-sentence exception in the prior POMS allowing payments to a third party that result in the SNT beneficiary receiving goods or services (see Section II(A) of this article). However, because the prior POMS did not expressly permit SNT payments for companion services and caregiving, SSA representatives often approached these distributions with skepticism, objecting to them outright or imposing additional requirements that varied among field offices.
SSA also made an abortive attempt in 2012 to include additional requirements in the POMS for payment to caregivers (which later was rescinded). In response to this uncertainty, SNT trustees often were conservative when evaluating and approving requests for caregiving — an unfortunate result considering that caregiving is one of the best uses of SNT funds to enhance the quality of life for a person with a disability.
The revised POMS directly addresses this issue by including in the third-party payment exception the right of SNT trustees to make distributions for companion services and caregiving. The revised POMS notes that “[p]ayment for companion services can be a valid expense[,]” providing the example of an Alzheimer’s patient who cannot be left alone and requires a sitter. Incidental expenses incurred by the companion in the course of providing services also can be paid by the trust. The revised POMS also includes express directions to field offices limiting the review of payments for companion services and caregiving. Under the revised POMS, when evaluating the propriety of trust disbursements to pay for companion services and caregiving, field offices are directed:
• Not to request evidence of medical training or certification of family members paid by the trust to provide care;
• Not to request income tax information “or similar evidence” from a service provider to establish a business relationship; and
• Not to routinely question the reasonableness of the compensation the trust pays to service providers. If there is a reason to question the reasonableness of compensation, field offices are directed to consider the time and effort involved in providing the service and the “prevailing rate of compensation” for similar services in the beneficiary’s geographic area.
SSA has struggled for years to decide whether distributions from an SNT to the beneficiary’s family in payment for companion services and caregiving violated the sole benefit rule. The revised POMS emphatically resolves this struggle, stating, “Family members may normally [provide care] without compensation, but that does not prohibit the trust from paying for these services.” The POMS also specifies that the policy allowing payments for companion services and caregiving should be applied uniformly regardless of who provides these services and care (family member, nonfamily member, or professional services company).
Family members are the most likely candidates to be companions and caregivers. They are aware of the needs of the person with a disability, often provide better care, and may cost less than a third party hired through an agency. In most cases, family caregivers providing legitimate services in good faith have struggled to comply with training requirements and heightened scrutiny. Previous SSA policies in this regard were intrusive and unnecessary and likely resulted in many SNT trustees paying more money for third parties that did not provide the level of care that a family member would have provided.
SSA’s new policy is pragmatic, reasonable, and better serves the interests of SNT beneficiaries. Companion services and caregiving significantly enrich the quality of life for persons with disabilities. They not only assist beneficiaries with activities of daily living, provide companionship, and increase comfort but also offer beneficiaries additional opportunities for community involvement. The revised POMS policy authorizing companion services and caregiving expenses provides SNT trustees with confidence that is acceptable to pay companions and caregivers, even if they are family members.
C. Relaxation of Standards on Payment of Third-Party Travel Expenses to Enable Individuals to Accompany a Trust Beneficiary
SSA’s policy in the prior POMS regarding SNT payment of travel expenses to enable third parties to accompany the beneficiary was extremely restrictive. Although an SNT trustee could pay the beneficiary’s travel expenses, the trustee was limited to paying a nonbeneficiary’s travel expenses to accompany the beneficiary only when the beneficiary was traveling to obtain medical treatment. This was true even if the beneficiary required the assistance of others to travel safely.
The effect of SSA’s policy was harsh. In some cases, the SNT beneficiary was unable to travel or was forced to travel in an unsafe manner. The policy also was unfair: Forcing nonbeneficiaries to pay out of pocket meant that SNT beneficiaries who required support were less able to travel than those fortunate enough to be able to travel alone.
The revised POMS reverses this unsafe and unfair policy. SNT trustees are allowed to pay the travel expenses of third parties to accompany the beneficiary and to provide the beneficiary with services or assistance necessitated by his or her medical condition, disability, or age. Providing services or assistance necessitated by the beneficiary’s age “means that the beneficiary is a minor and cannot travel unaccompanied.”
The revised POMS defines travel expenses the same way the Internal Revenue Service defines them — expenses for transportation, lodging, and food. The revised POMS discourages undue scrutiny and second-guessing of SNT payment of such expenses for nonbeneficiaries:
Absent evidence to the contrary, accept a statement from the trustee that the service or assistance provided is necessary to permit the trust beneficiary to travel. Do not request a physician statement concerning medical necessity. You should not request evidence of medical training or certification for the person accompanying the trust beneficiary.
Field offices are to review an SNT trustee’s determination that assistance is necessary only when they have evidence indicating that it is not. Field offices also cannot require persons accompanying the beneficiary to have official medical training or certification.
The SNT trustee is limited in how many companions can be paid to accompany a beneficiary. In evaluating the number of people necessary to provide support, SSA field offices are to use a reasonableness test. The POMS provides an example of an SNT trustee paying for “other individuals, such as parents or caretakers” to provide supervision and assistance to a minor child with a disability on vacation, noting, “Travel without this support would not be possible.”
However, in order for an SNT trustee to pay a third-party’s expenses, the companion must actually provide services or assistance to the beneficiary necessary for the beneficiary to travel. For example, an SNT trustee cannot pay for a third party to travel without providing care, simply to enable the care provider to travel and provide care. This request often arises in the context of parents requesting that an SNT trustee pay for the beneficiary’s siblings to accompany them on a trip on the basis that the parents cannot leave the nonbeneficiary children home alone and cannot afford to pay for their travel. SSA expressly notes “the fact that … parents or caretakers cannot afford to pay for the other children’s trip, or cannot leave them at home, is not a consideration relevant to the sole-benefit requirement.” The revised POMS policy on paying for companion travel is another example of SSA creating a more reasonable standard for SNT trustees and beneficiaries to follow.
D. Authorization of Payment of Third-Party Travel Expenses in Other Situations
The prior POMS strictly limited the SNT trustee’s ability to pay the travel expenses of nonbeneficiaries who did not accompany the beneficiary. Third-party travel expenses were limited to travel to visit the beneficiary “for the purpose of ensuring the [beneficiary’s] safety and/or medical well-being[.]” To qualify for this exception to the sole benefit rule, the beneficiary had to live in a “long-term care facility … or other supported living arrangement in which a non-family member or entity [was] being paid to provide or oversee the [beneficiary’s] living arrangement.” This limitation was strict — SNT trustees could not pay the travel expenses of third parties to visit a beneficiary living independently to ensure his or her safety or medical well-being.
The revised POMS incorporates the prior POMS exception, but expands it by allowing certain travel expenses to be paid from an SNT to enable third parties to visit an SNT beneficiary living independently:
c. Payment of third party travel expenses to visit a trust beneficiary
The following travel expenses to ensure the safety or medical well-being of the trust beneficiary are allowable and do not violate the sole-benefit rule:
• Travel for a service provider to oversee the trust beneficiary’s living arrangements when the beneficiary resides in an institution, nursing home, other long-term care facility (for example, group homes and assisted living facilities), or other supported living arrangements.
• Travel for a trustee, trust advisor named in the trust, or successor to exercise his or her fiduciary duties or to ensure the well-being of the beneficiary when the beneficiary does not reside in an institution.
NOTE: A third party can be a family member, non-family person, or another entity. If you have questions about whether a disbursement is permissible, please request assistance from your regional office.
Expanding the prior POMS exception is a positive development; however, the POMS is not clear enough to enable field offices to uniformly apply the policy. For example, the requirement that the traveler visit the beneficiary is contained in the section heading only and is not mentioned in the exceptions that appear in the bulleted items. Similarly, it is unclear whether the various stated travel purposes — ensuring the safety or medical well-being of the trust beneficiary, overseeing the living arrangements of a beneficiary in a long-term care facility or other supported living arrangement, and exercising fiduciary duties or ensuring the well-being of a beneficiary who does not live in an institution — are inclusive or exclusive of others. For example, would an SNT trustee permitting a distribution to allow an individual to travel to exercise fiduciary duties for the beneficiary also have to justify the distribution on the basis that it ensures the beneficiary’s safety or medical well-being?
Finally, although the term “third party” is used in the section heading and defined in the note, the exceptions that appear in the bulleted items identify permitted travelers specifically as “service provider[s]” and “trustee[s], trust advisor[s] named in the trust, or successor[s].” Could a distribution to pay expenses for a family member to visit a noninstitutionalized trust beneficiary be disputed on the basis that the family member is not a trustee or trust adviser? As field offices attempt to apply the revised POMS to various fact patterns, these ambiguities will require them to interpret the POMS. Nationwide, the same fact pattern might result in different outcomes, depending on the specific field office’s interpretation.
Taking the section heading’s wording (“travel expenses to visit a trust beneficiary”) as an implicit requirement applicable to the exceptions that appear in the bulleted items, some justifiable distributions are still not permitted under the revised exception. For example, an SNT trustee might be asked to permit a service provider to travel to investigate living options for a beneficiary moving from Connecticut to Florida (travel to ensure the well-being of the beneficiary) or to pay for the trustee to visit a trust-owned home formerly occupied by the beneficiary (travel to exercise fiduciary duties). The expanded exception still does not cover these situations because the travel is not “to visit [the] trust beneficiary.” Even though some issues still need to be worked out, the revised POMS is another example of SSA authorizing additional expenses from an SNT to enhance the beneficiary’s quality of life.
E. Addition of New Special Needs Trust Distribution Method — Administrator-Managed Prepaid Cards
1. Overview of Administrator-Managed Prepaid Cards
An ongoing challenge for SNT trustees is making SNT disbursements that do not violate SSA rules but allow some latitude for the beneficiary to directly purchase goods and services. The revised POMS adds a new way for SNT trustees to enable beneficiaries to be in control of their own lives: administrator-managed prepaid cards. The best-known example of these cards is the True Link card, issued by True Link Financial.
Administrator-managed prepaid cards work as follows. The account has an owner/administrator and an authorized user. The administrator can transfer money to the card and configure the card to block or allow certain categories of expenditures or vendors. For example, an administrator (SNT trustee) could fund the card with $1,000 a month and configure the card to prohibit cash withdrawals, payment for food or shelter items, purchases at bars, merchandise purchases from the Home Shopping Network, and so on. The authorized user (SNT beneficiary) is issued a nontransferable card in his or her name. The beneficiary can then use the card to purchase authorized items, without further assistance from the SNT trustee.
2. Lack of SSA Policy on Administrator-Managed Prepaid Cards
Prior to the POMS revisions, SSA did not have a separate official agency policy regarding administrator-managed prepaid cards. Some SSA field offices evaluated them under POMS SI 00830.522 rules regarding gift cards and gift certificates. Under POMS SI 00830.522, a gift card or gift certificate is not considered income or a resource to an SSI claimant if two criteria are met: (1) the card or certificate cannot be sold (i.e., it is nontransferable) and (2) the card or certificate cannot be used to purchase food or shelter items. The penalty for violating the criteria is that the gift card or gift certificate is treated as unearned income, not ISM.
This was a big trap for the unwary SNT trustee who thought that paying for food or shelter from a gift card or gift certificate was considered ISM (resulting in a limited ISM deduction), when in fact it was really considered unearned income (resulting in a dollar-for-dollar reduction in the beneficiary’s SSI benefits). For example, if an SNT trustee purchased a $500 Visa card and a $500 Best Buy card for the beneficiary and the beneficiary had a right to transfer both cards to someone else, the beneficiary would have $980 in unearned income for the month and lose his or her SSI benefits.
Administrator-managed prepaid cards were established by companies to facilitate compliance with the gift card and gift certificate rules in the prior POMS. Because these cards are nontransferable, they have always met the first criterion in the prior POMS. SNT trustees would block payments for all food or shelter items, thus making the cards meet the second criterion. Several SSA field offices would verify that a card met the second criterion by reviewing card statements or an administrator’s printout of the card’s configuration to confirm that no purchases from vendors selling food or shelter items could be made.
In practice, however, this approach rendered the cards less useful for rural SNT beneficiaries. In order for an administrator-managed prepaid card not to be considered income or a resource to the beneficiary, the SNT trustee could not allow any purchases from vendors selling food or shelter items. In many rural areas, however, the majority of vendors are larger chain stores (e.g., Walmart, Target) that sell food items along with general wares.
3. Addition of SSA Policy on Administrator-Managed Prepaid Cards
The revised POMS adds administrator-managed prepaid cards as a new way to make SNT distributions and mentions the True Link card by name. The revised POMS articulates policies that differ from (and are more easily met than) those applicable to gift cards and gift certificates. Under the revised POMS, if an administrator-managed prepaid card is nontransferable and the SNT trustee is the card’s administrator (and thus has the authority to block access to cash withdrawals, purchases from specific vendors, and purchases in particular categories), the card is not considered income or a resource to the beneficiary. “Whether the trust beneficiary receives income from trust disbursements depends on the type of purchase reflected in the card statement.” SSA field offices are advised as follows.
Treat purchases in the following manner:
• If the administrator-managed prepaid card is used to obtain cash, such as at an ATM, the withdrawal counts as unearned income.
• If the administrator-managed prepaid card pays for food or shelter items, such as charges at a restaurant, the individual will generally be charged with ISM up to the PMV. [Under SSI program policies, receipt of ISM reduces SSI benefits because SSI is intended to meet claimants’ food and shelter needs. POMS SI 00835 provides SSA policies related to ISM and calculation of ISM deductions].
• If the administrator-managed prepaid card pays for non-food, non-shelter items, such as for clothing at a department store, the individual usually does not receive income unless the item received would not be a totally or partially excluded non-liquid resource the following month.
The revised POMS makes the administrator-managed prepaid card much more valuable. The test for compliance with SSA rules is not how the card is configured; it is that no cash withdrawals or food or shelter purchases appear on the card statement. If the SNT beneficiary’s card statement shows no cash withdrawals, purchases of food or shelter items, or purchases of items countable as a resource under SSI program policies, the beneficiary is not considered to be receiving income or ISM and his or her SSI benefits will not be affected. Thus, since the revised POMS became effective, it is no longer necessary as a matter of policy to block purchases from vendors that sell food or shelter items.
As long as an SNT beneficiary can be relied on to avoid making food or shelter (ISM) purchases using an administrator-managed prepaid card, the beneficiary’s SSI benefits should not be affected even if he or she uses a card without spending restrictions. But if an SNT beneficiary does purchase food or shelter during the month with an administrator-managed prepaid card, the maximum reduction in the beneficiary’s SSI is only $277.
In order for the beneficiary to receive this favorable treatment, his or her card must be established with the SNT trustee as the owner of the account, which gives the trustee control over the card’s configuration and use. The beneficiary should be a cardholder, but not an owner. If the beneficiary is the owner of the account, thus controlling card permissions, the funds on the card will be considered unearned income the month they are deposited on the card and countable resources beginning the month after deposit.
F. Authorization of Transfers From a Special Needs Trust to an ABLE Account
In 2014, Congress passed the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act, under which states can create savings account programs to benefit certain persons with disabilities. Accounts under an ABLE program are subject to both an annual and total contribution limit; the total contribution limit is capped at the value allowed under the state’s education savings plan (529 plan). ABLE account balances of $100,000 or less do not affect the accountholder’s SSI eligibility and maintain the accountholder’s Medicaid eligibility regardless of the account’s balance, up to the state’s 529 plan limit. Funds withdrawn from an ABLE account and used within the same calendar month have no effect on SSI benefits eligibility. ABLE accounts provide a valuable tool for eligible persons to hold — and exercise control over — resources while remaining eligible for vital means-tested public benefits.
SSA previously published a POMS concerning the treatment of ABLE accounts; however, it did not address whether accounts could be funded or increased by contributions from an SNT. Wary of interruptions to SNT beneficiaries’ SSI benefits, some trustees were reluctant to make these SNT-to-ABLE account transfers. The revised POMS, however, authorizes transfers from trusts to ABLE accounts. Under the revised POMS, a transfer to an ABLE account from a trust that is not counted as a resource to the trust beneficiary “generally will be considered” a third-party contribution; that is, a contribution by a person other than the ABLE accountholder.
Funds transferred from an SNT to an ABLE account are not counted as income to the accountholder/SNT beneficiary. An ABLE account provides an effective planning tool for an SNT trustee who does not want to trigger an ISM reduction by paying the beneficiary’s food and shelter costs directly from an SNT. If, instead, the SNT trustee distributes the monthly food and shelter costs to the ABLE account and the beneficiary pays for rent, food, and utilities from the ABLE account, an ISM reduction is not triggered. In 2019, this strategy is saving SNT beneficiaries $3,324 a year in SSI benefits that otherwise would be lost due to ISM reductions.
G. Requirement That Beneficiary of First-Party Special Needs Trust Be Disabled When Application for Means-Tested Benefits Is Made
Both Title 42 U.S.C. §§ 1396p(d)(4)(A) and (C) define SNTs as trusts containing the assets of an individual “who is disabled (as defined [under SSA’s medical eligibility criteria]).” Before April 2018, however, disability criteria always was evaluated when SSA reviewed the trust (i.e., when an SSI claimant’s SNT was funded or when an SNT beneficiary applied for SSI benefits). As amended in April 2018, POMS SI 01120.203 included a requirement that a person must be disabled at the time his or her first-party SNT was established. This requirement was new. In order to qualify an SSI claimant’s trust as an SNT, it had never been necessary before to prove that the SNT beneficiary was eligible for SSI as of the date his or her SNT was established.
Under the April 2018 POMS, in order for the trust to qualify as an individual SNT, “the individual whose assets were used to establish the [individual SNT] must be disabled for SSI purposes … at the time the trust was established.” This disability requirement also applied to pooled SNT accounts. Under the April 2018 POMS, if the trust beneficiary was found not to meet the disability criteria, field offices were instructed to do the following:
evaluate the trust under instructions in [POMS] SI 01120.201, Trusts Established with the Assets of an Individual on or after 01/01/00]. Since the trust provisions take precedence over the transfer provisions (see [POMS] SI 01120.201D.5), depending on the terms of the trust, the trust may count as a resource or the transfer penalty may apply (see [POMS] SI 01150.121).
POMS SI 01120.201 provides SSA’s general policies regarding self-funded trusts. Under these policies, self-funded trusts generally are countable for purposes of SSI financial eligibility. Irrevocable self-funded trusts are countable resources to the extent that payments, including discretionary payments, may be made to or for the benefit of the grantor or the grantor’s spouse. SNTs are an exception to (or safe harbor from) the general trust rules.
The policy set forth in the April 2018 POMS was unfavorable to SNT beneficiaries. For various reasons, a person with a qualifying disability might not have an SSA disability determination dating back to when his or her SNT was established. First, medically eligible SSA applicants may not apply immediately for SSI benefits or may have difficulty navigating the application process successfully, resulting in delayed disability determinations or inaccurate disability onset dates. Second, an SSI application might not be made while a person is a minor, either because parental deeming rules would cause the minor to be financially ineligible for SSI (thus, there would be no advantage in applying) or because SSA’s medical eligibility requirements for minors are more restrictive than those applicable to adults. The April 2018 requirements also were likely difficult for SSA field offices to apply. Field offices were asked to determine an SNT beneficiary’s medical eligibility retroactively to when the trust was established. In some cases, this date could have been years before the beneficiary’s SSI application was submitted.
Fortunately, on June 26, 2019, SSA issued POMS SI 01120 TN 58, which revised POMS SI 01120.203, expressly adopting the approach field offices previously used. Individuals must be disabled “as of the date on which the trust’s resource status could affect the individual’s SSI eligibility” (rather than “as of the date on which the trust was established”). This revision better serves the interests of SSA field offices as well as SNT beneficiaries. Tasking field offices with verifying that an SNT beneficiary met SSA medical eligibility criteria before the beneficiary even applied for SSI was not the best use of SSA resources. There are compelling disincentives not to use an SNT unless necessary (e.g., the cost of establishing and administering an SNT, trustees’ total discretion over SNT distributions). Thus, in practice, SNTs only are indicated for those persons medically eligible for means-tested benefits. Policing by SSA is not necessary.
POMS SI 01120.203B now includes two examples showing the application of the new policy:
Example Scenario 1: Mark, a special needs trust beneficiary whose trust was established in 2015, applies for SSI Aged benefits in 2019. Even though disability is not a requirement for SSI Aged benefits, we must develop disability as of Mark’s SSI application date in 2019 for purposes of the Medicaid trust exception.
Example Scenario 2: Sally has a special needs trust that was established in 2010 when she was 10 years old. At the time, she was not eligible for SSI Child benefits because of her deeming parents’ income and resources. However, she applies for SSI Adult benefits in 2018. We must develop disability as of Sally’s SSI application date in 2018. 2010 is not relevant because the trust did not present as a resource issue until the SSI application date in 2018.
In these examples, the medical eligibility determination is made once, as of the date of the SSI application. It is not necessary for the SSA field office to verify that the applicant was medically eligible for SSI when the SNT was funded in order to find the trust qualifies as an SNT.
H. Creation of a Better Procedure to Amend Disqualifying Special Needs Trusts
SNTs can last for decades, through many changes in SSA administration, personnel, and policy. Once SSA receives and reviews a trust, should it ever re-evaluate the trust’s terms for compliance with current policy? Are SSA’s decisions regarding specific trusts (trust determinations) subject to reopening and revision? Who has standing to request reopening? Can defective trusts ever be cured? Several POMS revisions touch on these issues.
Regarding SSA’s ability to review a previously evaluated trust, under revised POMS SI 01120.200L, field offices are directed not to re-evaluate trusts that have a resource determination unless there is:
• an amendment to the trust,
• a change of or clarification in policy that affects the resource determination,
• a request for reopening, or
• a situation [in which the field office becomes] aware of a prior erroneous determination.
The revised POMS policy serves SNT beneficiaries well. Absent a trust amendment or significant change in policy, annual SSI eligibility reviews or audits of trust disbursements should not prompt re-evaluation. Once SSA makes a determination that a trust is not countable and its beneficiary is eligible for SSI, post-eligibility determinations are subject to SSA’s rules of administrative finality. Requests for reopening must be made in writing within the applicable time limit. Reopening a matter can be requested for up to 1 year from the date of the determination or decision for any reason; up to 2 years from the date of the determination or decision for good cause; and indefinitely upon a finding of fraud or similar fault.
Prior to the POMS revisions, the POMS generally applicable to reopening a matter governed who could request a reopening. Reopening a matter could be requested by the SSI applicant/recipient; his or her representative payee, guardian, or spouse; or a person eligible for an SSI underpayment. The POMS revisions add SSA as a party able to request the reopening of a trust determination.
Under the prior POMS, if a post-eligibility review determined a previously exempted trust to be a countable resource, SSA issued a notice that the trust was countable and a notice of overpayment of benefits for the lesser of either (a) the period of time the trust was noncompliant or (b) 2 years (the time limit for SSA to reopen a determination for good cause and the maximum time limit for SSA to reopen a determination absent fraud). Moreover, the trust beneficiary would be ineligible for SSI prospectively for as long as the trust contained the faulted provision.
Defective trusts could then be amended, after which the SNT beneficiary again became eligible for SSI benefits. Unfortunately, this led to retroactive periods of ineligibility that could not be cured, as in the following example.
Darren is the beneficiary of a court-established SNT created in December 2015 with funds he received as a result of a legal settlement. Unfortunately, the trust contained a defective postmortem Medicaid reimbursement provision. When SSA reviewed the trust in January 2016, the field office erroneously found that the trust met the requirements applicable to SNTs and exempted it from resource counting. Darren therefore continued to receive SSI benefits until February 2018, when he met with his SSA field office for a redetermination appointment.
At redetermination, SSA reopened its original finding under the 2-year “good cause” administrative finality provisions. SSA determined that the trust had been a countable resource since February 2016 and suspended Darren’s SSI benefits beginning March 2018. In April 2018, the Medicaid reimbursement provision was amended and brought to compliance. SSA subsequently found the trust to be noncountable from May 2018 forward; however, Darren was subject to an overpayment for the benefits he received from February 2016 to April 2018 (the month the trust was amended).
The prior POMS contained only limited exceptions, providing a 90-day safe harbor to amend a noncompliant trust. These exceptions applied only for violations of POMS policies related to trust provisions involving premortem trust terminations, third-party travel expense provisions, pooled trust management provisions, and null and void clauses. In these situations, the trust would continue to be exempt from resource counting if corrected within 90 days after SSA notified the beneficiary that the trust had a faulted provision.
The revised POMS extends the 90-day safe harbor to all situations in which SSA previously determined a trust to be exempt from resource counting but later determined it countable due to a change in policy, a policy clarification, or SSA’s reopening of a prior erroneous determination. The 90-day period begins on the day SSA informs the SNT beneficiary or his or her representative payee that the trust contains provisions SSA believes make it countable as a resource. Only one 90-day period is available; however, the field office may grant an “extension request … for good cause if the recipient requests it and provides evidence that the disqualifying issue cannot be resolved within the 90-day period … .” As in previous safe harbors, the trust is not counted as a resource during the 90-day period and will not be counted as a resource at all if corrected within the 90-day period, plus any extension.
To take advantage of SSA’s 90-day right-to-amend provision, all practitioners should send SSA a copy of the SNT document by certified mail to ensure that SSA receives a copy and obtain proof that it did. It is not uncommon for SSA to fail to keep a record that it received an SNT. Failure to provide SSA with a copy of the SNT document means that the SNT beneficiary will be subject to an overpayment if SSA later finds an error in the document or implements a new policy. For third-party SNTs, the revised POMS states that unfunded third-party SNTs should not be sent to SSA until they are actually funded.
III. Incorporation of Supplemental Security Income Trust Monitoring System Protocols and Pooled Trust Precedents
Over time, increased use of SNTs and the prevalence of pooled SNTs highlighted a problem: SSA field offices were not issuing uniform decisions regarding SNTs. Field offices often were not aware of or misapplied SNT criteria. A pooled trust might have been accepted in one region as valid but considered defective and found countable in another. In response to this variability, SSA developed a systematic process to review trust documents, now delineated in revised POMS SI 01120.200L.
As described in the revised POMS, SSA now has three levels of trust review:
1. Field office claim specialists collect necessary documentation and make a preliminary determination as to whether a trust is countable. This information is forwarded to the appropriate regional trust review team for review.
2. Once the field office’s decision is reviewed and approved, a trust determination is processed by the field office claims specialist.
3. The beneficiary receives a letter regarding his or her SSI eligibility. If the trust is counted as a resource and thus affects the beneficiary’s eligibility, the results of the trust determination are disclosed in the eligibility notice.
Regional trust leads (RTLs) are senior members of the regional trust review teams. RTLs are tasked with evaluating new pooled trusts, conducting re-evaluations requested by field offices, and evaluating appeals. In conjunction with the regional chief counsel, RTLs develop precedents for pooled trusts originating in their respective regions, which, once made, are the basis for acceptance of the pooled trust nationwide. RTLs may request guidance from SSA’s central office or regional chief counsel.
IV. Incorporation of Previously Published Administrative and Emergency Messages
The revised POMS incorporates several previously published AMs and EMs that announced substantive policy changes, as follows.
• Manual notices issued when trusts are found countable must contain certain information. For many years, SSA required field offices to manually draft an individual notice to inform a claimant that SSA found his or her trust countable, rendering the claimant ineligible for SSI. The revised POMS incorporates EM-16012, a 2016 message that presents the information required to appear in these notices. The message was issued after SSA found that the notices field offices were issuing “sometimes provide[d] incomplete information about ineligibility due to excess resources that include a countable trust.” Under the revised POMS, the notice must “specify using free-form text each reason the trust is countable (that is, why it does not meet the relevant exception(s) or requirements).” The notice also must cite the section of the trust (or joinder agreement) that is faulted, the POMS citation that contains the policy requirements alleged not to have been met, and a sentence indicating where the POMS appears online. In the author’s experience, many SSA field offices are still noncompliant with this requirement and SSA faces no real penalty for failing to comply.
• Individuals are permitted to establish their own individual self-settled SNTs. From 1993 (when the SNT exception was created) until enactment of the 21st Century Cures Act on December 13, 2016, the statutory language of Title 42 U.S.C. § 1396p(d)(4)(A) permitted individual self-settled SNTs to be established by a parent, grandparent, legal guardian, or a court. Persons with disabilities were not listed and thus were unable to establish their own individual SNTs. The statute was changed to allow persons with disabilities to establish their own individual SNTs. Revised POMS SI 01120.203, Exceptions to Counting Trusts Established on or after January 1, 2000, incorporates this change, which SSA originally discussed in EM-16053, a message it issued after enactment of the Act. POMS SI 01120.203C and 01120.203I.2 add “the individual [with special needs]” as a party able to establish an SNT. POMS SI 01120.203C criteria for individual SNTs are supplemented by SI 01120.203B.
• A Court-Established SNT Must Meet Certain Requirements. A court is one of the entities that is allowed to establish (or fund) a first-party SNT under Title 42 U.S.C. §§ 1396p(d)(4)(A) and (C). AM-15032, issued May 2015, provided guidance as to what qualified as a court-established trust; this guidance has been incorporated into revised POMS SI 01120.203B.8. Under the revised POMS, in order for an SNT to be considered court established, the SNT must be either (a) established by the court or (b) prospectively ordered by the court to be established. Retroactive approval of an already-executed trust document is not sufficient. A trust is established by the court even if the order is issued in response to a petition; it is not necessary for the court to act sua sponte. Practitioners should make sure that a first-party SNT for court establishment is not already signed or executed when submitted.
V. Articulations of Prevailing Agency Policy
The revised POMS also includes a variety of express statements of policy that special needs practitioners will consider helpful.
• ABLE accounts are not trusts. ABLE accounts are not trusts subject to SSA’s trust resource-counting and exceptions criteria. For purposes of SSI eligibility, amounts up to $100,000 held in an ABLE account are considered an excluded resource belonging to the accountholder.
• Registered or titled purchases made by an SNT must be held in the name of the beneficiary or the trust. Items purchased by the SNT must be held in the name of the beneficiary or the trust, unless not permitted under state law. However, if permitted by the beneficiary’s state Medicaid program, a car may be titled in a third party’s name as long as the SNT holds a lien on the car, thus preventing its sale by the third party. The lien prevents the purchase from being considered a gift to the third party, which violates the sole benefit rule.
• Military Survivor Benefit Plan (SBP) payments received by an SNT are not counted as income to the trust beneficiary. An assignment of SBP payments to an SNT is considered irrevocable; therefore, SBP payments received by the trust are not counted as income to the trust beneficiary.
• Court-ordered payments of income to an SNT are not considered income to the trust beneficiary. Court orders directing legally assignable payments to an SNT are considered irrevocable; therefore, payments received by the trust are not considered income to the trust beneficiary. Structured settlement annuity payments, child support, and alimony are legally assignable payments as long as the assignment is completed before the SSI recipient’s 65th birthday.
• SSI payments received by an SNT beneficiary are not counted as income if they are later deposited into an SNT. SSI payments received by an SNT beneficiary and later deposited into an SNT are not counted as unearned income to the beneficiary when deposited to the trust. SSI and Social Security Disability Insurance (SSDI) benefits cannot be directly deposited into an SNT.
• Disbursements to SNT beneficiary’s debit card are unearned income. Disbursements from the SNT to the beneficiary’s personal debit card are treated as unearned income to the beneficiary in the month the disbursement is made.
• An agent under a power of attorney may fund an SNT using the principal’s assets. If state law allows (and the principal confers authority to do so), an agent under a power of attorney may use his or her authority as agent to transfer the principal’s assets to an SNT established for the principal.
Many of the substantive changes to SSA policy articulated in the 2018 SNT POMS revisions are advantageous for beneficiaries. A number of the policy changes are designed to provide a checklist for SSA field office review and to deter field offices from applying extraneous criteria in making determinations. The modification of the sole benefit rule clarifies that third parties may receive some collateral benefit from an SNT disbursement as long as the disbursement primarily benefits the beneficiary. The revised POMS also expressly permits distributions by an SNT trustee to pay the beneficiary’s companion services and caregiving expenses and advises field offices regarding what considerations are (and are not) relevant in evaluating these distributions.
The POMS revisions also include policy changes liberalizing SNT distribution criteria. SSA now allows an SNT trustee to pay expenses for third parties to accompany the trust beneficiary during travel when the third parties provide assistance necessary to the beneficiary. This is a huge step forward for SNT beneficiaries and their advocates: The prior POMS policy only allowed SNT payment of third-party travel expenses for the beneficiary’s medical travel, making recreational travel impossible for many beneficiaries requiring assistance. Furthermore, the revised POMS endorsement of administrator-managed prepaid cards and SNT-to-ABLE transfers simplifies SNT administration and increases trust beneficiaries’ independence and flexibility.
The revised POMS favorably modifies SSA policies regarding SNT resource determinations and options for correcting SNTs it finds to be defective. The revised POMS limits SSA’s right to reopen trust determinations and limits re-evaluations of previously accepted trusts. This change provides SNT beneficiaries with added security that future POMS changes will not affect their SSI eligibility. Similarly, the expansion of the 90-day right to amend all trusts previously accepted as SNTs gives practitioners confidence that any future changes to the POMS can be managed without interruptions in the beneficiary’s eligibility.
The 2018 SNT POMS revisions make many positive changes; however, the revised provision permitting SNTs to pay travel expenses for third parties who do not accompany the beneficiary is ambiguous, which may result in SNT trustees being more conservative and field offices adopting different interpretations of what is (and is not) acceptable.
Despite this minor issue, the overall effect of the 2018 SNT POMS revisions is a huge boon to persons with disabilities and the professionals who advise them. SSA has indicated that it is not done making changes to the POMS in the context of SNTs. Stay tuned for additional changes.