Jay J. Sangerman, PLLC
Analysis of Social Security Letters
(This is a letter sent to various interested parties in this issue)
The Social Security Administration issued another letter confirming the Social Security rules pertaining to structured settlements. Of interest, the January 31, 2006 letter does not make any changes to the August 12, 2003 letter which the Social Security Administration wrote to me pertaining to annuities. What the January 31, 2006 letter accomplishes, however, is greater specificity, stating that structured settlement annuities, payable to special needs trusts, conform to Social Security rules for eligibility. This is not a change in the law; it is merely another answer to those who misconstrue the law.
Of importance, I believe, is that in my many discussions with SSA and CMS over the past three years, there has been total support for structured settlements payable to special needs trusts. It is my belief that the "program personnel" at SSA and CMS share our view that structured settlements payable into special needs trusts provide an important added layer of protection for disabled individuals. Both SSA and CMS have given an extraordinary amount of time to analyze the issues created by those who advocated against structured settlements; SSA and CMS, thereafter, drafted concise letters to be helpful in countering those who state that structured settlement annuities paid into special needs trusts would disqualify a beneficiary of Medicaid and/or SSI entitlements.
Where there have been problems in the past with structured settlements paid into special needs trusts were in such instances where the parent stated that the payments were paid to the parent, rather than to the parent as trustee of the special needs trust, or where the settlement documents did not state that the annuity payments were irrevocably paid to the trustee. Therefore, as set forth in both the August 12, 2003 letter and the January 31, 2006 letter, it is imperative that our documents are properly drafted to reflect the "irrevocability" of the annuity payments and that the annuity payments are clearly made to the trustee and not to a parent.
As is commonly known, the special needs trust rules require that there be no additions to the special needs trust as of age 65. However, The Social Security Administration confirms that, so long as the annuity payments are irrevocable paid to the trust prior to age 65, the payments will not be considered disqualifying additions to the special needs trust.
I am sure that there will continue to be those who state that structured settlement annuities cannot be paid into special needs trusts. Hopefully, the August 12, 2003 letter and the January 31, 2006 letter will help demonstrate to attorneys and judges that such interpretation of the special needs statute is misguided.
The combination of structured settlements and special needs trusts is a powerful tool for the protection of disabled people. Therefore, it is equally important that we assure that the settlement documents, annuity contracts and special needs trusts be properly drafted so as not to give any concern to Medicaid districts that their remainder interests in the special needs trusts is not defeated because of the annuity. Additionally, we need to review our forms to ascertain whether they comply with the SSI and Medicaid rules.
Attached hereto, please find my letter to the Social Security Administration, dated August 23, 2005, setting forth my legal analysis, SSA and CMS had requested from me for purposes of a response, for why structured settlement annuities can be paid into special needs trusts, without age limitations, so long as the trust is created and funded prior to age 65. I believe that the legal analysis in the August 23, 2005 letter gives additional background to the law and the outcome in this matter. I have given the attached analysis to CMS, which has told me that it will be issuing a letter to complement the letter from the Social Security Administration. In the meantime, CMS has given me a written "sign off" agreeing with the provisions of my August 23, 2005 analysis.
Jay J. Sangerman