April 14

SSA Directs Local Offices to Give Specifics When Rejecting Trusts

The Social Security Administration recently issued an Emergency Message to all personnel requiring workers to specifically inform SSI applicants or beneficiaries of the reasons a special needs trust has been rejected by the agency.

In the past, when the SSA determined that assets in an SSI beneficiary or applicant’s trust were countable, the agency would frequently send a notice to the beneficiary or applicant telling him that he was ineligible for benefits because his assets exceeded the resource limit.  However, this notice almost never explained the reasoning behind the SSA’s rejection of the trust.

The new Emergency Message, which went out to all field level SSA personnel, requires caseworkers to spell out exactly what portion of the Program Operations Manual System (POMS) applies to the trust being rejected.  Unfortunately, the Emergency Message does not tell field workers that they have to explain their reasoning in plain English — merely citing the appropriate section of the POMS appears to be enough.  While this will make it relatively easy for professionals to determine what went wrong with a trust and whether an appeal is in order, it will likely give the layperson little if any guidance about his or her trust.

To read the Emergency Message, go to:  https://secure.ssa.gov/apps10/reference.nsf/links/03022016015517PM

March 10

Trust Is an Available Asset Because Trustees Have Discretion to Make Distributions

A New York appeals court rules that a Medicaid applicant’s trust is an available asset because the trustees have discretion to make distributions to her. In the Matter of Frances Flannery v. Zucker (N.Y. Sup. Ct., App. Div., 4th Dept., No. TP 15-01033, Feb. 11, 2016).

Frances Flannery was the beneficiary of a trust that granted her children, as the trustees of the trust, the authority to distribute as much of the principal as they felt in their discretion was necessary to provide for Ms. Flannery’s health and welfare. Ms. Flannery applied for Medicaid, and the state denied her benefits after determining the trust was an available asset.

Ms. Flannery appealed, arguing that the trust is not an available asset because her children refuse to make distributions of the principal to her. After a hearing, the state affirmed the denial of benefits, and Ms. Flannery appealed to court.

The New York Supreme Court, Appellate Division, affirms the denial of Medicaid benefits. According to the court, “because the principal of the trust may, in the discretion of [Ms. Flannery’s] children be paid for [Ms. Flannery’s] benefit,” the principal of the trust is an available asset “despite the fact that her children refuse to exercise their discretion to make such payments of principal.”

For the full text of this decision, go to: http://www.nycourts.gov/courts/ad4/Clerk/Decisions/2016/02-11-16/PDF/0066.pdf

February 29

Federal Court Grants Preliminary Injunction Continuing Medicaid Benefits in Decanting Case

A federal district court grants a Medicaid beneficiary’s request for a preliminary injunction preventing the Connecticut Department of Social Services from treating two trusts established for the beneficiary by her deceased mother as countable resources before they were decanted into supplemental needs trusts.  Simonsen v. Bremby (D.Ct., No. 15-cv-1399, Dec. 23, 2015).

Joy A. Miller established two inter vivos trusts for her daughter, Dawn Simonsen, that were funded when Ms. Miller died in 2003.  The trusts, established in Florida, gave the trustee the ability to “pay to [Dawn] or utilize for her benefit so much of the income and principal of her trust as the trustee deems necessary or advisable from time to time for her health, maintenance in reasonable comfort, education and best interest considering all of her resources known to the trustee . . . the trustee is encouraged to be liberal in its use of the funds for her even to the extent of the full expenditure thereof.”  

Ms. Simonsen, a quadriplegic on a ventilator, was admitted to a nursing home in October 11, 2013, and she applied for Medicaid on July 31, 2014.  On August 29, 2014, the trustee of the two trusts successfully petitioned a Florida court for permission to decant the two trusts into two new supplemental needs trusts.  Although the Connecticut Department of Social Services (DSS) initially approved Ms. Simonsen’s Medicaid application, it subsequently determined that the original trusts were countable resources and assessed a seven year transfer of assets penalty for the decanting into the clearly inaccessible supplemental needs trusts.  Ms. Simonsen appealed DSS’s decision and while that appeal was pending filed a request for a preliminary injunction with the federal district court asking it to prohibit the state from terminating her Medicaid benefits and to hold that the previous trusts were not accessible resources, voiding the transfer penalty.

Referring to the Social Security Administration’s Program Operations Manual System (POMS), the U.S. District Court for the District of Connecticut grants the motion for a preliminary injunction, finding that the original trusts are not countable resources because they “do not contain terms providing the beneficiary with any right or authority to direct any payments, and instead empowered the Trustee with the sole discretion to determine when to make a distribution . . . Moreover, the Predecessor Trusts contained a valid spendthrift clause . . . In short, if a trust contains a spendthrift clause, the beneficiary has no legal right or authority to access the trust principal, and, therefore, it is not counted as an available resource for SSI, and consequently Medicaid, eligibility purposes.”

For the full text of this decision, click here

February 4

Medicaid Applicant’s Ability to Occupy House in an Irrevocable Trust Means Trust Is Available Asset

A Massachusetts trial court rules that a Medicaid applicant’s irrevocable trust is an available asset because he retained the right to use and occupy the property that was placed in the trust. Nadeau v. Thorn (Mass. Super. Ct., No. 14-DV-02278C, Dec. 30, 2015).

In 2001, Lionel Nadeau and his wife created an irrevocable trust and transferred their house into the trust. The trust provided that the Nadeaus had the right to use and occupy the house, which they did until Mr. Nadeau entered a nursing home. In 2014, Mr. Nadeau applied for Medicaid benefits. The state considered the trust a countable asset and denied benefits.

Mr. Nadeau appealed. The state affirmed denial of benefits, ruling that the trust was an available asset because he was able to use the property in the trust during his lifetime. Mr. Nadeau appealed to court, arguing that his home could not be considered available unless the trust gave him a right to some sort of payment.

The Massachusetts Superior Court affirms, holding that the trust is an available asset. The court rules that while state regulations may require an asset in an irrevocable trust to be both available and payable, federal regulations in the form of Transmittal 64 provide that payment may include non-cash disbursements, including the right to use and occupy real property.

For the full text of this decision, click here.

December 21

How to Choose a Trustee

If you create a trust, you will need a separate person or institution, called a “trustee,” to manage the trust either now or in the future, depending on the type of trust.  Choosing the right trustee is crucial to making sure your wishes are carried out. The choice is important because being a trustee can be a difficult job, with a trustee’s duties including making proper investments, paying bills, keeping accounts, and preparing tax returns.

A trust is a legal arrangement through which a trustee holds legal title to property for another person, called a “beneficiary.” The trust document will name the trustee, although there are several different types of trusts. The simplest one is a revocable living trust in which the person who creates the trust maintains control of the trust while he or she is alive. In this situation, the trust document will name a successor trustee to take over after the original trustee dies or becomes incapacitated. Other trusts — such as an irrevocable trust or special needs trust — may have a separate trustee from the start.

The law isn’t very strict about who may serve as your trustee, as long as the person is legally competent, meaning he or she is over 18 years of age and is capable of managing his or her own affairs. The main consideration when selecting a trustee is picking someone who is trustworthy. The trustee has a duty to manage the trust in the beneficiary’s best interest. The trustee does not need legal or financial expertise, but he or she must have good judgment. In the case of a special needs trust, the trustee should have knowledge of federal benefits programs.

Another consideration is that the trustee be able to manage the trust for an extended period of time. Your choice of trustee should be someone who will likely be around for a long time and who has the time to devote to trustee duties. It is important that the trustee be of sound mind and body.

If you don’t know anyone who meets these qualifications, you can look into hiring an independent trustee. This can be an individual or an institution with no beneficial interest in the trust. Some examples include: a bank or trust company, a professional trustee, an investment advisor or manager, an investment banker, an accountant or a lawyer. In addition to being independent, a professional trustee will usually have experience and expertise in managing trusts. If you aren’t comfortable with having a stranger manage the trust, it may be possible to choose a family member and a professional trustee as co-trustees. The downside to hiring an independent trustee is that the trustee will charge a fee, which is usually a percentage of the trust.

Whomever you choose as trustee, it is important to revaluate your choice every few years. The person who is right today may not be right tomorrow. Your attorney can help you determine who is the best trustee for you. 

For more information about trusts, click here.

For information about what to ask before becoming a trustee, click here.