The Social Security Administration has released a new POMS (Program Operations Manual System) instruction dealing with early termination provisions in (d)(4)(A) and (d)(4)(C) trusts. Under the new instruction, if a trust contains a provision that allows for early termination before the death of the primary beneficiary, it must contain a payback provision that would apply upon such early termination; otherwise, the entire trust will be considered a countable resource for SSI purposes. The new instruction does not take effect until October 1, 2010, but when it becomes effective it will apply to all trusts established with the assets of an SSI beneficiary that were created on or after January 1, 2000.
Not all self-settled special needs trusts contain early termination provisions, but many do. In most cases, trusts with these provisions are designed to terminate if the beneficiary does not continue to require government benefits or if the trustee decides that continued management of the trust is not in the beneficiary's best interest. Upon early termination, the trust document typically specifies who receives the trust funds. In the most typical situation the primary beneficiary will end up with the trust assets, but in some cases trusts are designed to either pay into a (d)(4)(C) trust for the beneficiary's benefit or, in limited cases, the funds will be distributed to a third party.
Under the new POMS instruction, any self-settled (d)(4)(A) or (d)(4)(C) trust created after January 1, 2000, that contains an early termination clause must meet three specific requirements in order for it to count as an exempt resource for SSI purposes. First, the trust must contain payback language that would allow the state to recoup any medical assistance paid through early termination. (Although the previous version of the POMS was unclear, in most practitioners' opinions the payback provisions were required only upon the beneficiary's death.) Second, after the payment of taxes and administrative expenses, no one other than the primary beneficiary can receive the trust assets upon early termination. Third, the primary beneficiary cannot compel the early termination.
Because the Social Security Administration has just issued the new instruction, there has not been a lot of time for discussion about all of its ramifications. However, ASNP members have had a limited discussion of the topic on the Members Listserv (click on the 5th week of June or the 1st week of July). Other than the obvious procedural problem attorneys will face in having to amend trusts to comply with the new instruction, the language of the instruction calls into doubt whether transfers from (d)(4)(A) trusts into (d)(4)(C) trusts can take place upon early termination, since the instruction clearly states that "no entity other than the trust beneficiary may benefit from the early termination (i.e., After reimbursement to the State(s), all remaining funds are disbursed to the trust beneficiary)". (emphasis in original) There is an exception that allows a (d)(4)(C) trust to transfer funds to another (d)(4)(C) trust.
To read the new POMS instruction, click here.
To post questions or ideas about the best way to handle this major change, join the discussion on the Members Listserv, here.