Part One: What’s New in the Social Security Administration’s Approach to Special Needs Trusts?

Part One

Establishing a Self-Settled Special Needs Trust Is Easier Said Than Done: A Two-Step Process

Under the POMS, the resource counting provisions of Section 1613(e) do not apply to a trust:

1. Which contains the assets of a disabled individual under 65 years of age:

2. Which is established for the benefit of such individual “through the actions of” a parent, grandparent, legal guardian, or a court;

3. Which provides that the State(s) will receive all amounts remaining in the trust upon the death of the individual equal to the total medical assistance paid on behalf of the individual under a State Medicaid plan. POMS SI 01120.203B.1.a.

To qualify for the special needs trust exception, the assets of the disabled individual must be put into a trust “established through the actions of” the disabled individual’s parent(s), grandparent(s), legal guardian, or a court. POMS SI 01120.203B.1.f.

(a) In the case of a legally competent, disabled adult, a parent or grandparent may establish the trust by executing the trust instrument as settlor or grantor, and thereafter, transfer a nominal amount of their own money to the trust, known as a “seed” trust. Some states may permit a trust to be established without the transfer of a nominal amount of money, referred to as an “empty” or “dry” trust under the POMS.

The Social Security Administration has issued a number of Regional Chief Counsel Precedents in which it decided that an empty or dry trust is not valid under the laws of Arizona, California, Colorado, Hawaii, Nevada, and South Dakota.

Practice Tip: In funding a self-settled special needs trust, the drafter may wish to include language which states that the trust is initially being funded with the assets of the parent and refer to this amount in schedule A of the trust. Regional Chief Counsel Precedent PS 01825.046 South Dakota

(b) Under federal law, a guardian is one of the individuals who is permitted to establish a self-settled special needs trust. However, as a practical matter, it will be necessary for the guardian to petition a court for authority to establish a trust on behalf of the ward, as well as fund the trust with the assets of the ward.

(c) In the case of a trust established through the actions of a court, the creation of the trust must be “required” by the court order. It is not sufficient for the court order to merely approve the creation of the trust. POMS SI 01120.203B.1.f.

(d) A Representative Payee is not one of the enumerated parties who is authorized to establish a trust.

Once the trust is established through the actions of a parent, grandparent, legal guardian, or a court, the trust must be funded with the assets of the disabled individual. This may be accomplished by:

(a) A legally competent adult beneficiary, transferring his or her own assets to the trust.

(b) An individual, such as a parent, acting under a power of attorney executed by the disabled adult beneficiary, transferring the disabled individual’s assets to the trust.

(c) A guardian acting under a court order granting legal authority to the guardian to transfer the Ward’s assets into the trust.

(d) A Representative Payee is permitted to transfer SSDI and SSI benefits to a self-settled special needs trust where the trust allows the funds to be used exclusively for the beneficiary’s current needs such as food, clothing, housing, medical care and personal comfort items, or for reasonably foreseeable needs. See GN 00602.075 and GN 00602.001

The Elder Law Center of Mondschein and Mondschein, P.A.

9000 S.W. 87th Court

Miami, Florida 33176

(305) 274-0955