Please note that Jay Sangerman is certified by the New York State Department of Insurance to give Continuing Education presentations to claims and life agents, as well as to structured settlement brokers.
The presentations are on the use of Special Needs Trusts (also called Supplemental Needs Trusts) in the settlement process. Also discussed is the issue of Medicaid liens.
For further information, please call Barbara Sangerman, client liaison, for further information, at 212-922-0711.
January 31, 2006
Jay J. Sangerman, Esq.
I am writing in response to your letter dated August 23, 2005. I appreciate your patience and apologize for the delay in responding, but it was necessary for us to obtain guidance from our Office of the General Counsel regarding your questions.
You requested clarification of the Supplemental Security Income (SSI) program's policy regarding payments from a structured settlement annuity into a trust established for the benefit of a disabled individual under Section 1917(d)(4)(A) of the Social Security Act (frequently called a Special Needs Trust (SNT)). You also requested a statement of SSI policy regarding payments from such a structured settlement after the beneficiary reaches age 65 when the structured settlement was established by irrevocable assignment of the annuity payments to the trust prior to the individual attaining age 65.
When we refer to a structured settlement, we mean an annuity that is purchased by a defendant in a lawsuit to satisfy his or her monetary obligation to the plaintiff as the result of a judgment or settlement. The plaintiff generally has no ownership right in the annuity itself, but is the beneficiary with the right to receive the stream of payments from the annuity. The annuity payments can be paid out over a period of years or the plaintiff's lifetime. In the case of a disabled plaintiff who receives, or intends to file an application for, SSI or other needs-based assistance programs such as Medicaid, annuity payments from structured settlements are often irrevocably assigned to an SNT for which the disabled individual is the beneficiary. Under such an assignment, the Trustee or the trust becomes the owner of the right to receive the structured settlement payments. Under our operating instructions in Program Operations Manual System (POMS) SI 01120.201J.1., for a trust that is not a resource, "additions to the trust principal made directly to the trust are not income to the grantor, trustee or beneficiary" except in certain circumstances involving assignment of payments. POMS SI 01120.201J.1.d. states that "a legally assignable payment, . . . that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable." Therefore, if the beneficiary of a trust which is not a resource for SSI has no right to anticipate, sell or transfer the annuity payments, the payments from a structured settlement annuity that are irrevocably assigned to an SNT, are not income to the trust beneficiary when paid into the trust. Neither is the right of the trust to receive the payments a resource to the trust beneficiary.
Your second question concerned payments from a structured settlement to an SNT after the trust beneficiary attains age 65. Section 1613(e) of the Social Security Act (the Act) generally provides that a trust established by an individual shall be a resource for SSI purposes. Section 1613(e)(5) provides for certain exceptions to this resource rule, in particular, trusts described in subparagraph (A) of section 1917(d)(4) of the Act. Section 1917(d)(4)(A) provides an exception to counting trusts as resources for Medicaid eligibility where the trust contains the assets of a disabled individual under age 65, is established by a parent, grandparent, guardian or a court and provides that the State will be reimbursed for certain Medicaid expenditures.
Our POMS SI 01120.203B. l.b. states that:
To qualify for the special needs trust exception, the trust must be established for the benefit of a disabled individual under age 65. This exception does not apply to a trust established for the benefit of an individual age 65 or older. If the trust was established for the benefit of a disabled individual prior to the date the individual attained age 65, the exception continues to apply after the individual reaches age 65.
However, any additions to or augmentation of a trust after age 65 are not subject to this exception. Such additions may be income in the month added to the trust, depending on the source of the funds (see SI O 1120.20 1 J.) and may be counted as resources in the following months under regular SSI trust rules.
In order to determine whether to count the additions to the trust as income or resources, we look to the Center for Medicare & Medicaid Services (CMS) since section 1917(d)(4) of the Act is part of the statute providing rules of the Medicaid program. CMS has taken the position that additions to the trust made after the individual reaches age 65 should not be treated differently from prior additions where there has been an irrevocable assignment of a structured settlement to a properly established SNT. CMS has issued the State Medicaid Manual to provide policy guidance to the States in administering the Medicaid program. Part 3, section 3259.7.A. of the State Medicaid Manual states that "... the exception for the [special needs] trust... continues even after the individual becomes age 65. However, such a trust cannot be added to or otherwise augmented after the individual reaches age 65. Any such addition or augmentation after age 65 involves assets that were not assets of an individual under age 65."
Black's Law Dictionary defines an annuity as "a right to receive fixed, periodic payments, either for life or for a term of years." Thus, in this situation, it is the right to receive such payments that is assigned to the SNT and not any of the individual payments. As the State Medicaid Manual states, any "addition or augmentation after age 65 involves assets that were not assets of the individual under age 65." Here, the right to receive the payments is the asset, not the individual payments. Therefore, where the trust contains the irrevocable assignment of a structured settlement annuity made when the individual was less than 65 years of age, annuity payments paid to an SNT after an individual reaches age 65 are treated the same as payments made before the individual attained age 65 and do not disqualify the trust from the 1613(e)(5) SNT exception.
The statements of policy above are clarifications of SSI policy and are applicable to trusts established on or after 1/1/00. I hope this information adequately responds to your questions. If you have additional questions, you may contact Ken Brown, of my staff. Mr. Brown can be reached at (410) 965-9772.
cc: Ginni Hain