The Social Security Administration recently revised three sections of its Program Operations Manual System (POMS) that address the treatment of trusts. The affected sections, 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 01120.201 (Trusts Established with the Assets of an Individual on or after 1/1/00 ), and SI 01120.203 (Exceptions to Counting Trusts Established on or after 1/1/00 ), are the primary references for SSA caseworkers evaluating trusts for SSI applications.
Although none of the changes, except the first dealing with transfers into (d)(4)(C) trusts, represent unexpected or drastic departures from current SSA policy, several changes of the POMS merit attention. (Please note that this article assumes a general knowledge of the relevant POMS sections).
Transfers into (d)(4)(C) trusts by those over 65 may cause penalties
In a major departure from previous guidelines, the revised POMS section SI 01120.203B.2.a addresses the possibility of a transfer of resources penalty for the funding of a (d)(4)(C) trust by an individual over age 65, a nationwide implementation of a controversial policy memorandum issued by the Boston Regional Office in May 2008. Where the previous version of the POMS specifically stated, in the section exempting (d)(4)(C) trusts from being counted as resources, that "there is no age restriction" on the use of (d)(4)(C) trusts, the current POMS keeps the prior language, but adds a second, all-important sentence: "However, a transfer of resources to a trust for an individual age 65 or over may result in a transfer penalty."
Expanded definitions in SI 01120.200 and SI 01120.203
SI 01120.200B includes several expanded or entirely new definitions that also apply to section SI 01120.201. The new language defining "grantor trusts" in SI 01120.200B.8 describes these trusts as "subject to state law" and directs the caseworker to consult with the regional office regarding individual state provisions, whereas the previous version merely provided a basic definition of the term. Furthermore, section SI 01120.200B.16, dealing with spendthrift trusts, slightly changes the wording of the definition, saying that "a spendthrift clause or trust prohibits both involuntary and voluntary transfers of the beneficiary's interest in the trust income or principal. The definition goes on to explain that state law could void spendthrift provisions, especially in the case of grantor trusts, rendering the trust an available asset.
Two new definitions - of "Revoke" and "Terminate" - are found at sections SI 01120.200B.19 and SI 01120.200B.20, respectively. The revised POMS incorporates these new terms throughout, almost entirely replacing "revoke," which was undefined but often used in the old manual, with "revoke or terminate" in the new manual. For instance, where section SI 01120.200D.1.a originally states "If an individual (claimant, recipient, or deemor) has legal authority to revoke the trust and then use the funds . . . ", the revised manual reads "If an individual (claimant, recipient, or deemor) has legal authority to revoke or terminate the trust and then use the funds . . ." (emphasis added)
Finally, the POMS also updates the definition of a nonprofit association (for purposes of the pooled trust exception) in section SI 01120.203B.2.c to include groups certified under a state nonprofit statute, as opposed to previous language requiring organizations to meet the requirements for nonprofit organizations found in IRC 501(c). Nonprofit associations are still required to have tax-exempt status under IRC 501(a).
New discussion of disbursements
The updated POMS contains a more specific discussion of trust disbursements in section SI 01120.200E. Whereas the previous POMS merely explained that, for trusts where the principal is not considered a resource, "cash paid directly from the trust to the individual is unearned income," the new, expanded version discusses in-kind income and directs the case worker to the appropriate sections discussing liquid assets. SI 01120.200E.2, dealing with trusts where the principal does count as a resource, now outlines the transfer of resources penalties incurred when a trust gives funds to someone other than the SSI beneficiary.
Credit Cards and Gift Cards
Although not included in SI 01120.200, the new POMS provisions do address the treatment of credit cards and gift cards in sections SI 01120.201I.1.d and SI 01120.201I.1.e. The new guidelines explain that trusts may pay for a beneficiary's credit card bill so long as food and shelter are not included in the payment. If they are, those payments are handled using the presumed maximum value rule. Also, if gift cards can be used to purchase food or shelter, these too will be treated as unearned income in the month of receipt, and the balance will count as a resource in the month following receipt.
Authority to Act and (d)(4)(A) / (d)(4)(C) Trusts
The new POMS guidelines, especially section SI 01120.203, clean up the previously murky language regarding the "authority to act" issue when creating and funding trusts. In the older POMS, this issue was addressed in several sentences, which have now been expanded into two full subsections, SI 01120.203B.1.f and SI 01120.203B.1.g. There are also significant revisions to the corresponding provisions in SI 01120.203B.2.f. The new sections also directly permit the establishment of a "seed trust" by a parent, grandparent, or court, which can then hold an SSI beneficiary's assets as permitted. This policy always existed prior to the POMS revision but was subject to widely different interpretations at the local level.
POMS Expert Provides Helpful Guide to Changes
After thoroughly reviewing the new POMS sections, Academy of Special Needs Planners (ASNP) advisory board member David Lillesand, a Florida attorney and ASNP's resident POMS expert, has put together a comprehensive summary of the changes. Attorney Lillesand has also helpfully assembled all three new POMS sections in one document and highlighted every change, down to the punctuation. Together, these two documents provide an indispensable guide for any attorney looking to delve deeper into the intricacies of Social Security trust guidelines.
Both the summary and the POMS sections are now available for download in the ElderLawAnswers Knowledge Bank. (Note that both of these documents are available to ElderLawAnswers members only.)
To read Attorney Lillesand's POMS summary, click here. To review the POMS changes, click here.
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