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SI 01120.201 Trusts Established by Citations: Social Security Act as amended in 1999, Section 1613(e); 42 U.S.C. 1382b; P.L. 106-169, Section 205 On 12/14/99, the President signed into law the Foster Care Independence Act of 1999 (P.L. 106-169). Section 205 of this law provides, generally, that trusts established with the assets of an individual (or spouse) will be considered a resource for supplemental security income (SSI) eligibility purposes. It also addresses when earnings or additions to trusts will be considered income. The legislation also provides exceptions to the general rule of counting trusts as resources and income (see SI 01120.203). These provisions are effective for trusts established on or after 1/1/00. See SI 01120.200for trusts established prior to 1/1/00, trusts established with the assets of third parties, and revocable trusts that meet an exception to the statutory provisions of Section 1613(e) but meet the definition of a resource in SI 01110.100B.1. Trusts are often complex legal arrangements involving State law and legal principles that a claims representative may not be able to apply without legal counsel. Therefore, the following instructions may only be sufficient for you to recognize that an issue is present that should be referred to your regional office (RO) for possible referral to the Regional Chief Counsel. When in doubt, discuss the issue with the RO staff. Many issues can be resolved by phone. The corpus or principal of the trust is all property and other interests held by the trust, including accumulated earnings and any other additions, such as new deposits, to the trust after its establishment. However, earnings or additions are not included in the corpus in the month they are credited or otherwise transferred to the trust. NOTE: Earnings or additions are not included in the corpus in the month that they are credited or transferred into the trust because they are considered under income counting rules in that month. For purposes of this section, an asset is any income or resource of the individual or the individual's spouse including:
For purposes of this section, trust income includes any earnings of, and additions to, a trust established by an individual:
For purpose of this section, the individual's spouse is the individual we consider to be the spouse for normal SSI purposes. (See SI 00501.150B.) 5. Legal Instrument or Device Similar to a Trust This is a legal instrument, device, or arrangement, which may not be called a trust under State law, but is similar to a trust. That is, it involves:
6. Trust Established by a Will A trust established by a will or a testamentary trust (see SI 01120.200B.15.) is a trust established under the terms of a will and which is only effective upon the individual's death. A trust to which property is transferred during the life of the individual who created the will is not a trust established by a will, even if the will transfers additional property to that trust. 7. Trust Established by an Individual An individual is considered to have established a trust if any assets of the individual (or spouse), regardless of how little, were transferred to a trust other than by a will. NOTE: The grantor (see SI 01120.200B.2.) named in the trust document and the individual who established the trust may not be the same for purposes of this provision. The trust may name the individual who physically took action to establish the trust rather than the individual who provided the trust assets as grantor, e.g., a parent, insurance company, or other agent. This distinction is important, especially in developing Medicaid trust exceptions in SI 01120.203. For purposes of this section, foreclosure is the occurrence of an event that bars or prevents access to, or payment from, a trust to an individual now or in the future. For other definitions applicable to this section, see SI 01120.200B.
a. Trusts to Which This Provision Applies Except as provided in SI 01120.203A., this section applies to trusts “established by an individual.” An individual is considered to have established a trust if any assets of the individual (or spouse) (regardless of how little) were transferred to a trust other than by a will. (See SI 01120.201B.2. for a definition of an asset.) b. Examples
In the case of an irrevocable trust where the assets of the individual (or the individual's spouse) were transferred along with the assets of another individual(s), these provisions apply to the portion of the trust attributable to the assets of the individual (or spouse). Thus, in determining countable resources in the trust, you must prorate any amounts of resources, based on the proportion of the individual's assets in the trust. Example: Jimmy Smith is an adult with cerebral palsy. His grandparents left $75,000 in trust for him in their wills. Recently (after 1/1/00), Mr. Smith won an employment discrimination lawsuit and was awarded a $1,500 judgment which was deposited into the trust established by his grandparents. The $1,500 of Mr. Smith's funds are subject to these provisions and could be a resource if payment could be made to or for Mr. Smith's benefit (see SI 01120.201D.2.). The $75,000 deposited by his grandparents is not subject to these provisions (see SI 01120.200) and is not a resource. d. Application of the Trust Provisions These provisions apply to trusts without regard to:
NOTE: While exculpatory clauses, use clauses, trustee discretion and restrictions on distributions, etc. do not affect a trust's countability, they do have an impact on how the various components are treated. For example, a prohibition in a discretionary irrevocable trust that limits the trustee to distributing no more than $10,000 to an individual has no effect on whether or not the trust is countable, but does affect the amount that is countable. For purposes of the SSI program, income includes any earnings or additions to a trust established by an individual:
D. POLICY--TREATMENT OF TRUSTS a. General Rule In the case of a revocable trust established by the individual, the entire corpus of the trust is a resource to the individual. However, certain exceptions may apply. (See SI 01120.203A.) NOTE: The exceptions in SI 01120.203A. only apply to counting a revocable trust under the statutory provisions of section 1613(e) of the Act. A revocable trust that meets the definition of a resource is still countable and must be developed under SI 01120.200. b. Relationship to Transfer Penalty Any disbursements from a revocable trust that are not made to, or for the benefit of, the individual (SI 01120.201F.1.) are considered a transfer of resources. (See SI 01150.100ff. for transfer of resource provisions.) Example: Willie Jones is a young adult with mental retardation. Mr. Jones had a revocable trust established after 1/1/00. All but $5,000 of funds in the trust had been spent on Mr. Jones' behalf. His mother files for SSI for him and is told that he is not eligible because of the money in the trust. His mother takes $4,500 of the money and makes a down payment on a new car that she says she will use to transport Mr. Jones. However, she registers the car in her own name. Even though his mother will use the car to transport Mr. Jones, the purchase of the car is a transfer of resources since the car does not belong to him. (See SI 01120.201F.1. for policy on purchases for the benefit of the individual and titling of property.) a. General Rule In determining whether an irrevocable trust established by an individual is a resource, we must consider how payments from the trust can be made. If payments from the trust could be made to or for the benefit of the individual or individual's spouse (SI 01120.201F.1.), the portion of the trust from which payment could be made that is attributable to the individual is a resource. However, certain exceptions may apply (see SI 01120.203). b. Circumstance under Which Payment Can or Cannot be Made In determining whether payments can or cannot be made from a trust to or for the benefit of an individual (SI 01120.201F.1.), take into consideration any restrictions on payments. Restrictions made include use restrictions, exculpatory clauses, or limits on the trustee's discretion included in the trust. However, if a payment can be made to the individual under any circumstance, no matter how unlikely or distant in the future, the general rule in SI 01120.201D.2.a. applies. c. Examples
a. Payments to an Individual Payments are considered to be made to the individual when any amount from the trust, including amounts from the corpus or income produced by the trust, are paid directly to the individual or someone acting on his/her behalf, e.g., guardian or legal representative. b. Payments on Behalf of/for the Benefit of an Individual See SI 01120.201F.1. Also see SI 01120.201I. for more instructions on disbursements from trusts. 4. Placing Excluded Resources in a Trust If an individual places an excluded resource in a trust and the trust is a countable resource, the resource exclusion can still be applied to that resource. For example, if an individual transfers ownership of his/her excluded home to a trust and the trust is a countable resource, the home is still subject to exclusion under SI 01130.100. (See SI 01120.200F. for a discussion of ownership of a home by a trust and the effect of payment of home expenses by the trust.) 5. Trust Rules Versus Transfer Rules for Assets in a Trust When an individual transfers assets to a trust, he/she generally transfers ownership of the asset to the trustee. In some cases, this could be considered a transfer of resources. In order to avoid both counting a trust as a resource and imposing a transfer of resources penalty for the same transaction, the trust provisions take precedence over the transfer provisions. If there are portions of the trust that cannot be counted as a resource, then the transfer rules may apply to that portion of the trust. E. POLICY—RELATIONSHIP TO TRANSFER PENALTY (IRREVOCABLE TRUST) 1. Trust Established with Individual's Resources a. Foreclosure of Payment When all or a portion of the corpus of a trust, established by an individual or spouse with the individual's or spouse's resources, cannot be paid to, or for the benefit of, the individual, the portion which cannot be paid is considered a transfer of resources for less than fair market value. The date of the transfer is considered to be:
(See SI 01150.100ff. for instructions related to transfers of resources.) b. Payment to or for the Benefit of Another When all or a portion of a trust, established by an individual or spouse with the individual's or spouse's resources, is a resource to the individual, if payment is made from the portion of the trust that is a resource to the individual to, or for the benefit of, another, then such a payment is a transfer of resources. c. Examples Example 1: Millie Russell is an adult SSI recipient. Upon the death of her mother, Ms. Russell receives the proceeds of a life insurance policy in the amount of $30,000. She uses the proceeds to establish an irrevocable trust solely to pay for the college expenses of her younger sister, in accordance with her mother's wishes. Receipt of the insurance proceeds is income to Ms. Russell. Establishment of the trust is a transfer of resources by Ms. Russell since payment to or for her own behalf is foreclosed by terms of the trust. Even though establishing the trust was her mother's wish, she was not legally obligated to do so. Her mother could have established a trust in her will or named the younger sister as beneficiary of the insurance policy. Example 2: Same scenario as in Example 1 except that Ms. Russell establishes an irrevocable trust for the benefit of her sister and herself. The trust is a resource to Ms. Russell and makes her ineligible. The trust makes a $5,000 payment to State College on behalf of her sister for tuition. The $5,000 payment is a transfer of resources for Ms. Russell. Although counting the trust as a resource would make her ineligible, if the trust principal was spent down to the point where it would allow resource eligibility, we still have to consider the tuition payments or other payments to or on behalf of her sister made within the 36-month transfer look-back period. (See SI 01150.100ff. for more information on the transfer penalty.) 2. Trust Established with Individual's Non-Resource Assets a. What Is a Non-Resource Asset? A non-resource asset is an asset that meets the definition in SI 01120.201B.2., but that does not meet the definition of a resource (SI 01110.100B.1. and SI 01110.115). b. Transfer Penalty When all or a portion of the corpus of a trust established by an individual or spouse with the individual's or spouse's non-resource assets is considered to be a resource under the trust provisions of P.L. 106-169, the transfer of resources penalty may apply in the following circumstances:
(See SI 01150.100ff. for instructions related to transfers of resources.) NOTE: If a trust established with the individual's non-resource assets is not a resource to the individual, payments to or for the benefit of another person or foreclosure of payment to the individual is not subject to the transfer of resources penalty because the trust was not a resource. For example, an individual has non-resource assets of $10,000 that she places into an irrevocable trust for the benefit of her daughter. The trust is not a resource to the individual because nothing can be paid to or for her benefit. It is also not a transfer of resources subject to the penalty provision since the trust is not a resource and the trust was established with non-resource assets. Likewise, payments from the trust to or for the benefit of the daughter are not transfers of resources. F. POLICY—FOR THE BENEFIT OF/ON BEHALF OF/FOR THE SOLE BENEFIT OF AN INDIVIDUAL 1. Trust Established for the Benefit of/on Behalf of an Individual Consider a trust established for the benefit of an individual if payments of any sort from the corpus or income of the trust are paid to another person or entity so that the individual derives some benefit from the payment. Likewise, consider payments to be made on behalf of or to or for the benefit of an individual if payments of any sort from the corpus or income of the trust are paid to another person or entity so that the individual derives some benefit from the payment. For example, such payments could include purchase of food, clothing or shelter, or household goods and personal items that count as income. The payments could also include services for medical or personal attendant care that the individual may need which does not count as income. NOTE: These payments are evaluated under regular income-counting rules. However, they do not have to meet the definition of income for SSI purposes to be considered to be made on behalf of or to or for the benefit of the individual. If funds from a trust that is a resource are used to purchase durable items, e.g., a car or a house, the individual (or the trust) must be shown as the owner of the item in the percentage that the funds represent the value of the item. When there is a deed or titling document, the individual (or trust) must be listed as an owner. Failure to do so may constitute evidence of a transfer of resources. 2. Trust Established for the Sole Benefit of an Individual Consider a trust established for the sole benefit of an individual if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual's life. However, the trust may provide for reasonable compensation for a trustee(s) to manage the trust, as well as reasonable costs associated with investment, legal or other services rendered on behalf of the individual with regard to the trust. In defining what is reasonable compensation, consider the time and effort involved in providing the services involved, as well as the prevailing rate of compensation for similar services considering the size and complexity of the trust. NOTE: This should not routinely be questioned unless compensation is being provided to a family member or the adjudicator has some other reason to question reasonableness of the compensation. Do not consider a trust that provides for the trust corpus or income to be paid to or for a beneficiary other than the SSI applicant/recipient to be established for the sole benefit of the individual. However, payments to a third party that result in the receipt of goods or services by the individual are considered for the sole benefit of the individual. The following disbursements or distributions are also permitted:
1. What Is a Legal Instrument or Device? Consider under trust rules a legal instrument, device, or arrangement, which may not be called a trust under State law, but which is similar to a trust. We will consider such an instrument, device or arrangement as a trust if:
A legal instrument or device similar to a trust can include (but is not limited to):
It is important to determine whether a burial trust was established with the individual's funds or funds that have been irrevocably paid to the funeral director. Since the trust provisions of P.L. 106-169 apply without regard to the purpose for which the trust was established, burial trusts that may be irrevocable under State law may be countable resources for SSI resource-counting purposes if established with the individual's assets. 1. Burial Trusts to Which These Provisions Do Not Apply These provisions do not apply to a burial trust where:
These arrangements should be evaluated under regular resource rules. Specifically, see the burial contract instructions in SI 01130.420–SI 01130.425. However, if the individual who purchased the funeral was named as the beneficiary of the burial trust established by a funeral director, and thus retains an equitable interest, see the rules applicable to third party trusts in SI 01120.200. 2. Burial Trusts to Which These Provisions Apply The provisions of this section apply to a trust if:
If application of this provision results in the counting of a burial trust as a resource, the burial space and burial funds exclusions may apply.
I. POLICY--DISBURSEMENTS FROM TRUSTS 1. Trust Principal Is Not a Resource If the trust principal (or a portion of the trust principal) is not a resource, disbursements from the trust (or that portion) may be income to the SSI recipient/beneficiary, depending on the nature of the disbursements. Regular rules apply to determine when income is available. a. Disbursements Which Are Income Cash paid directly from the trust to the individual is unearned income. b. Disbursements Which Result in Receipt of In-kind Support and Maintenance Food, clothing or shelter received as a result of disbursements from a trust by the trustee to a third party is income in the form of in-kind support and maintenance and is valued under the presumed maximum value (PMV) rule. (See SI 00835.300for instructions pertaining to the PMV rule. See SI 01120.200F. for rules pertaining to a home.) c. Disbursements Which Are Not Income Disbursements from the trust by the trustee to a third party that results in the individual receiving items that are not food, clothing or shelter are not income. For example, if the trust funds are paid to a provider of medical services for care rendered to the individual, the disbursements are not income to the SSI recipient. 2. Trust Principal Is a Resource a. Disbursements to or for the Benefit of the Individual If the trust principal (or a portion of the trust principal) is a resource to the individual, disbursements from the trust principal (or that portion of the principal) to or for the benefit of the individual are not income, but conversion of a resource. However, trust earnings, e.g., interest, are income. (See SI 01110.100for instructions pertaining to conversion of resources from one form to another and SI 01120.201J.2. and SI 01120.201J.3. for treatment of earnings/additions when the trust principal is a resource.) b. Disbursements Not to or for the Benefit of the Individual In the case of a trust established by an individual or spouse, if from the trust, or portion of the trust, that is considered to be a resource:
3. Mixed Trust—Part of Trust Is a Resource and Part Is Not a Resource In a situation where part of the trust was established with assets of the individual (or spouse) and part was established with the assets of other individuals, consult the trust document to determine from which portion of the trust disbursements were made. If the trust document does not specify, a statement from the trustee regarding the source of the disbursements will be determinative. If the trustee is unable to provide a statement, presume that disbursements were made first from the portion of the trust established with the funds of other individuals. When that portion is depleted, then presume that disbursements were made from the portion of the trust established with funds of the individual. J. POLICY--EARNINGS/ADDITIONS TO TRUSTS 1. Trust Principal Is Not a Resource a. Trust Earnings Trust earnings are not income to the SSI claimant or recipient who is a trust beneficiary unless the trust directs, or the trustee makes, payment to the beneficiary. Trust earnings are not income to the trustee or grantor unless designated as belonging to the trustee or grantor under the terms of the trust, e.g., as fees payable to the trustee or interest payable to the grantor. b. Additions to Principal Additions to the trust principal made directly to the trust are not income to the grantor, trustee or beneficiary. Exceptions to this rule are listed in SI 01120.201J.1.c. and SI 01120.201J.1.d. c. Exceptions Certain payments are not assignable by law and, therefore, are income to the individual entitled to receive the payment under regular income rules. They may not be paid directly into a trust, but individuals may attempt to structure trusts so that it appears that they are so paid. Important examples of non-assignable payments include:
A legally assignable payment (see SI 01120.201J.1.c. for what is not assignable), that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable. If the assignment is revocable, the payment is income to the individual legally entitled to receive it. 2. Trust Principal Is a Resource--Revocable Trust a. Trust Earnings Any earnings on a revocable trust are unearned income to the individual if:
Any additions to a revocable trust are unearned income to the individual if:
3. Trust Principal Is a Resource--Irrevocable Trust a. Trust Earnings Any earnings on an irrevocable trust are unearned income to the individual in the percentage that he/she provided the assets that constitute the corpus of the trust. This is the case if:
b. Additions to Principal--Irrevocable Trust Any additions to an irrevocable trust are unearned income to the individual if:
4. Individual's Assets Form Only a Part of the Trust In the case of an irrevocable trust where the assets of the individual (or the individual's spouse) were transferred along with the assets of another individual(s), these provisions apply to the portion of the trust attributable to the assets of the individual (or spouse). Thus, in determining income to the trust, you must prorate any amounts of income, based on the proportion of the individual's assets in the trust. Example: Jimmy Smith is an adult with cerebral palsy. His grandparents left $75,000 in trust for him in their wills. Recently (after 1/1/00), Mr. Smith won an employment discrimination lawsuit and was awarded a $1,500 judgment which was deposited into the trust established by his grandparents. The $1,500 of Mr. Smith's funds are subject to these provisions and could be a resource if payment could be made to or for Mr. Smith's benefit (see SI 01120.201D.2.). The $75,000 deposited by his grandparents is not subject to these provisions (see SI 01120.200) and is not a resource. In determining income to the trust (see SI 01120.201C.3.), we must prorate the income in proportion to the percentage of funds placed in the trust by Mr. Smith. Since this is an irrevocable trust, we will count 1.96% ($1,500$76,500) of the trust earnings as income and not count 98.04% ($75,000$76,500) of the earnings. Disbursements from, or additions to, the trust may require recalculation of the percentages.
Jay J. Sangerman, PLLC
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