Resources - US Code on Third Party Trusts

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U.S. Code on Third Party Trusts

A. Introduction to Trusts

1. General

A trust is a legal arrangement involving property and ownership interests. Property held in trust mayor may not be considered a resource for SSI purposes. The general rules concerning resources apply to evaluating the resource status of property held in trust.

2. Applicability of this Section

Generally, this section applies to trusts not subject to the statutory trust provisions in section 1613(e) of the Social Security Act, instructions for which are found in 81 01120.201 - 81 01120.204. Use the instructions in this section to evaluate the following types of trusts:

a. Trusts Established prior to 1/1/00 that Contain Assets of the Individual

Trusts established before 1/1/00 that contain assets of the individual, any of which were transferred before 1/1/00. If the trust was established prior to 1/1/00, but no assets of the individual were transferred to the trust prior to 1/1/00, see 81 01120.201.

b. Trusts that Contain Assets of Third Parties

  Trusts established before 1/1/00 that contain assets of third parties.

  Trusts established on or after 1/1/00 that contain only assets of third parties or the portion of a commingled trust attributable to assets of third parties. (Trusts established on or after 1/1/00 that contain assets of a Supplemental Security Income (SSI) claimant or recipient or the portion of a commingled trust attributable to assets of an SSI claimant or recipient must be evaluated under 81 01120.201 through 8101120.204.)

c. Other Trusts Not Subject to Section 1613(e) of the Social Security Act

Trusts established on or after 1/1/00 to which the instructions in 8101120.201-8101120.204 do not apply. (The instructions in those sections will refer you back to this section where applicable.)

3. Case Processing Alert

Trusts are often complex legal arrangements involving State law and legal principles that a claims representative (CR) 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 ChiefCounsel. When in doubt, discuss the issue with the RO staff. Many issues can be resolved by phone.

B. Glossary of Terms -- Trusts

1. Trust

A trust is a property interest whereby property is held by an individual or entity (such as a bank) called the trustee, subject to a fiduciary duty to use the property for the benefit of another (the beneficiary).

2. Grantor

A grantor (also called a settlor or trustor) is the individual who provides the trust principal (or corpus). The grantor must be the owner or have legal right to the property or be otherwise qualified to transfer it. Therefore, an individual may be a grantor even if an agent, or other individual legally empowered to act on his/her behalf(e.g., a legal guardian, representative payee for Title IIIXVI benefits, person acting under a power of attorney, or conservator), establishes the trust with funds or property that belong to the individual. The individual funding the trust is the grantor, even in situations where the trust agreement shows a person legally empoweredto act on the individual’s behalfas the grantor. Where more than one person provides property to the trust, there may be multiple grantors. The terms grantor, trustor, and settlor may be used interchangeably.

3. Trustee

A trustee is a person or entity who holds legal title to property for the use or benefit of another. In most instances, the trustee has no legal right to revoke the trust or use the property for his/her own benefit.

4. Trust Beneficiary

A trust beneficiary is a person for whose benefit a trust exists. A beneficiary does not hold legal title to trust property but does have an equitable ownership interest in it. As equitable owner, the beneficiary has certain rights that will be enforced by a court because the trust exists for his/her benefit. The beneficiary receives the benefits of the trust while the trustee holds the title and duties.

5. Trust Principal

The trust principal is the property placed in trust by the grantor which the trustee holds, subject to the rights of the beneficiary, and includes any trust earnings paid into the trust and left to accumulate. Also called “the corpus of the trust.”

6. Trust Earnings (Income)

Trust earnings or income are amounts earned by the trust principal. They may take such forms as interest, dividends, royalties, rents, etc. These amounts are unearned income to any person legally able to use them for personal support and maintenance.

7. Totten Trust

A Totten trust, or “bank account trust” is a tentative trust in which a grantor makes himselflherself trustee of his/her own funds for the benefit of another. Typically this is done by an individual depositing funds in a savings account and either titling the account or filing a writing with the bank indicating helshe is trustee of the account for another person. The trustee can revoke a Totten trust at any time. Should the trustee die without revoking the trust, ownership of the money passes to the beneficiary. Totten trusts are valid in mostjurisdictions, but otherjurisdictions have held them invalid because they are too tentative, i.e., they lack formal requirements and do not state a trust intent or purpose.

8. Grantor Trust

Subject to State law, a grantor trust is a trust in which the grantor of the trust is also the sole beneficiary of the trust. See 8101120.2008.2. for who may be a grantor. State law on grantor trusts varies. Consult with your Regional Office if necessary.

9. Mandatory Trust

A mandatory trust is a trust that requires the trustee to pay trust earnings or principal to or for the benefit of the beneficiary at certain times. The trust may require disbursement of a specified percentage or dollar amount of the trust earnings or may obligate the trustee to spend income and principal, as necessary, to provide a specified standard of care. The trustee has no discretion as to the amount of the payment or to whom it will be distributed.

10. Discretionary Trust

A discretionary trust is a trust in which the trustee has full discretion as to the time, purpose and amount of all distributions. The trustee may pay to or for the benefit of the beneficiary, all or none of the trust as helshe considers appropriate. The beneficiary has no control over the trust.

11. Medicaid Trust or Medicaid Qualifying Trust

See 81 01730.048 for definitions of a Medicaid trust or a Medicaid qualifying trust and see 81 01120.200H. for additional guidance on these trusts. See 8101120.203 for SSI treatment of Medicaid trust exceptions.

12. Residual Beneficiary

A residual beneficiary (also referred to as a contingent beneficiary) is not a current beneficiary of a trust, but will receive the residual benefit of the trust contingent upon the occurrence of a specific event, e.g., the death of the primary beneficiary.

13. Supplemental Needs Trust

A supplemental needs trust is a type of trust that limits the trustee’s discretion as to the purpose of the distributions. This type of trust typically contains language that distributions should supplement, but not supplant, sources of income including SSI or other government benefits.

14. Inter Vivos Trust

An inter vivos trust is a trust established during the lifetime of the grantor. It may also be called a living trust.

15. Testamentary Trust

A testamentary trust is a trust established by a will and effective at the time of the testator’s death.

16. Spendthrift Clause or Spendthrift Trust

A spendthrift clause or trust prohibits both involuntary and voluntary transfers of the beneficiary’s interest in the trust income or principal. This means that the beneficiary’s creditors must wait until money is paid from the trust to the beneficiary before they can attempt to claim it to satisfy debts. It also means that, for example, if the beneficiary is entitled to $100 a month from the trust, the beneficiary cannot sell his/her right to receive the monthly payments to a third party for a lump sum. In other words, a valid spendthrift clause would make the value of the beneficiary’s right to receive payments not countable as a resource. However, spendthrift clauses are not recognized in all States. Additionally, States that recognize spendthrift trusts generally do not allow a grantor to establish a spendthrift trust for his/her own benefit, i.e., as a beneficiary. Thus, using the example from above, in those States where spendthrift clauses are not recognized (whether at all or because the trust is a grantor trust), the value of the beneficiary’s right to receive monthly payments should be counted as a resource because it may be sold for a lump sum.

17. Third-Party Trust

A third-party trust is a trust established with the assets of someone other than the beneficiary. For example, a third-party trust may be established by a grandparent for a grandchild. Be alert for situations where a trust is allegedly established with the assets of a third party, but in reality is created with the beneficiary’s property. In such cases, the trust is a grantor trust, not a third-party trust.

18. Fiduciary Duty

Fiduciary duty is the obligation of the trustee in dealing with the trust property and income. The trustee holds the property solely for the benefit of the beneficiary with due care. The trustee owes duties of good faith and loyalty to exercise reasonable care and skill, to preserve the trust property and make it productive and to account for it. Because the trustee is a fiduciary does not mean that he/she is an agent of the beneficiary. The person who establishes a trust should not be confused with the grantor, who provides the assets that form the principal of the trust.

19. Revoke

The grantor of a trust may have the power or authority to revoke (i.e., reclaim or take back) the assets deposited in the trust. If the individual at issue (a claimant, recipient, or deemor (see 81 01310.127)) is the grantor of the trust, the trust will generally be a resource to that individual if that individual can revoke the trust and reclaim the trust assets. However, if a third party is the grantor of the trust, the trust will not be a resource to the beneficiary of the trust merely because the trust is revocable by the grantor. In a third party trust situation, the focus should be on whether the individual (claimant, recipient, or deemor) can terminate the trust and obtain the assets for him or herself.

20. Terminate

In rare instances, a trustee or beneficiary of a third-party trust (i.e., a trust established with the assets of a third party) can terminate (i.e., end) a trust and obtain the assets for him or herself.

C. Policy - Accounts That May Or May Not Be Trusts

1. Accounts That Are Not Trusts

The following accounts and instruments are similar to trusts and may be titled as trusts, but should generally not be developed under these instructions for SSI purposes:

a. Conservatorship Accounts

These accounts, established by a court, are usually administered by a court-appointed conservator for the benefit of an individual. They differ from a trust in that the “beneficiary” retains ownership of all of the assets, although in some cases they may not be available for support and maintenance. (See 81 01140.215 for instructions pertaining to conservatorship accounts.)

b. Patient Trust Accounts

Many nursing homes, institutions and government social services agencies maintain so called “patient trust accounts” for individuals to provide them with toiletries, cigarettes, candy and sundries. Although titled trust accounts, they are not; they are agency accounts. The individual owns the money in the account, which the institution is merely holding for himlher and making disbursements on his/her behalf as necessary. (See 81 01120.020, 81 00810.120 and GN 00603.020 for information on transactions involving agents.)

2. “In Trust For” Financial Accounts

These accounts mayor may not be trusts depending on the circumstances in the individual case. Examples of the most common situations follow:

a. Representative Payee Accounts

One of the most common types of “in trust for” accounts are representative payee accounts. These accounts are not trusts, but improperly titled accounts that are misleading as to the actual owner of the funds. If a representative payee deposits current or conserved benefits in an account, the account must be titled to reflect the beneficiary’s ownership interest. (See 81 01120.020 and 81 00810.120 for instructions pertaining to agency accounts. See GN 00603.010 for instructions pertaining to titling of accounts established by representative payees.)

b. Totten Trusts

An “in trust for” financial institution account may be a Totten trust if an individual deposits his/her own funds in an account and holds the account as owner for the benefit of another individual(s).

D. Policy - Trusts As Resources

1. Trusts Which Are Resources

a. Trust Principal is a Resource

If an individual (claimant, recipient, or deemor) has legal authority to revoke or terminate the trust and then use the funds to meet his food or shelter needs, or if the individual can direct the use of the trust principal for his/her support and maintenance under the terms of the trust, the trust principal is a resource for SSI purposes.

Additionally, if the individual can sell his or her beneficial interest in the trust, that interest is a resource. For example, if the trust provides for payment of $100 per month to the beneficiary for spending money, absent a prohibition to the contrary (e.g., a valid spendthrift clause, see 81 01120.2008.16.), the beneficiary may be able to sell the right to future payments for a lump-sum settlement.

b. Authority to Revoke or Terminate Trust or Use Assets

  Grantor

In some cases, the authority to revoke a trust is held by the grantor. Even if the power to revoke a trust is not specifically retained, a trust may be revocable in certain situations. (See 81 01120.2008.8. and 81 01120.200D.3. for information on grantor trusts.) Additionally, State law may contain presumptions as to the revocability of trusts. If the trust principal reverts to the grantor upon revocation and can be used for support and maintenance, then the principal is a resource to the grantor.

  Beneficiary

A beneficiary generally does not have the power to terminate a trust. However, the trust may be a resource to the beneficiary in the rare instance where he/she has the authority to terminate the trust and gain access to the trust assets. In addition, the beneficiary may, in rare instances, have the authority under the trust to direct the use of the trust principal. (The authority to control the trust principal may be either specific trust provisions allowing the beneficiary to act on his/her own or by permitting the beneficiary to order actions by the trustee.) In such a case, the beneficiary’s equitable ownership in the trust principal and his/her ability to use it for support and maintenance means it is a resource.

The beneficiary’s right to mandatory periodic payments may be a resource equal to the present value of the anticipated string of payments unless a valid spendthrift clause (see 81 01120.200B.16.) or other language prohibits anticipation of payments.

While a trustee may have discretion to use the trust principal for the benefit of the beneficiary, the trustee should be considered a third party and not an agent of the beneficiary, i.e., the actions of the trustee are not the actions of the beneficiary, unless the trust specifically states otherwise.

  Trustee

Occasionally, a trustee may have the legal authority to terminate a trust. However, the trust is not a resource to the trustee unless he/she becomes the owner of the trust principal upon termination. The trustee should be considered a third party. Although the trustee has access to the principal for the benefit of the beneficiary, this does not mean that the principal is the trustee’s resource. If the trustee has the legal authority to withdraw and use the trust principal for his/her own support and maintenance, the principal is the trustee’s resource for SSI purposes in the amount that can be used.

  Totten trust

The creator of a Totten trust has the authority to revoke the financial account trust at any time. Therefore, the funds in the account are his/her resource.

2. Trusts Which Are Not Resources

If an individual does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his/her own support and maintenance, the trust principal is not the individual’s resource for SSI purposes.

The revocability of a trust and the ability to direct the use of the trust principal depend on the terms of the trust agreement and/or on State law. If a trust is irrevocable by its terms and under State law and cannot be used by an individual for support and maintenance (e.g., it contains a valid spendthrift clause, see 81 01120.200B.16.), it is not a resource.

3. Revocability of Grantor Trusts

Some States follow the general principle of trust law that if a grantor is also the sole beneficiary of a trust, the trust is revocable regardless of language in the trust to the contrary.

However, many of these States recognize that the grantor cannot unilaterally revoke the trust if there is a named “residual beneficiary” in the trust document who would, for example, receive the principal upon the grantor’s death or the occurrence of some other specific event.

Under the modem view, residual beneficiaries are assumed to be created, absent evidence of a contrary intent, when a grantor names heirs, next of kin, or similar groups to receive the remaining assets in the trust upon the grantor’s death. In such case, the trust is considered to be irrevocable.

NOTE: The policies regarding grantor trusts mayor may not apply in your particular State. Field offices should consult regional POMS or your regional office program staff if in doubt.

E. Policy - Disbursements From Trusts

1. Trust Principal Is Not a Resource

If the trust principal is not a resource, disbursements from the trust may be income to the SSI recipient, depending on the nature of the disbursements. Regular rules to determine when income is available apply.

a. Disbursements Which Are Income

Cash paid directly from the trust to the individual is unearned income. Disbursements from the trust to third parties that result in the beneficiary receiving non-cash items (other than food or shelter), are in-kind income if the items would not be a partially or totally excluded non-liquid resource if retained into the month after the month of receipt (see 81 00815.550 and 81 01110.210).

For example, if a trust buys a car for the beneficiary and the beneficiary’s spouse already has a car which is excluded for SSI, the second car is income in the month of receipt since it would not be an excluded resource in the following month.

b. Disbursements Which Result in Receipt of In-kind Support and Maintenance

Food or shelter received as a result of disbursements from the trust by the trustee to a third party are income in the form of in-kind support and maintenance and are valued under the presumed maximum value (PMV) rule. (See 8100835.300 for instructions pertaining to the PMV rule. See 81 01120.200F. for rules pertaining to a home.)

c. Disbursements Which Are Not Income

Disbursements from the trust other than those described in 81 01120.200E.1.a. and 81 01120.200E.1.b. are not income. Such disbursements may take the form of educational expenses, therapy, medical services not covered by Medicaid, phone bills, recreation, entertainment, etc (see 81 00815.400).

Disbursements made from the trust to a third party that result in the beneficiary receiving non-cash items (other than food or shelter) are not income if those items would become a totally or partially excluded non-liquid resource if retained into the month after the month of receipt (see 81 00815.550 and 81 01110.210).

For example, a trust purchases a computer for the beneficiary. Since the computer would be excluded from resources as household goods in the following month, the computer is not income (see 81 01130.430).

2. Trust Principal Is a Resource

a. Disbursements to or for the Benefit of the Beneficiary

If the trust principal is a resource to the individual, disbursements from the trust principal received by the individual or that result in receipt of something by the individual are not income, but conversion of a resource. (However, trust earnings are income. See 81 01110.100 for instructions pertaining to conversion of resources from one form to another. See 81 01120.200G.2. for treatment of income when the trust principal is a resource and 81 00830.500 for treatment of dividends and interest as income).

b. Disbursements Not to or for the Benefit of the Beneficiary

If the trust is established with the assets of an individual or his or her spouse and the trust (or portion of the trust) is a resource to the individual:

  any disbursement from the trust (or from that portion of the trust that is a resource) that is not made to, or for the benefit of, the individual is considered a transfer of resources as of the date of the payment and is not considered income to the individual (see 81 01150.110); and

  any foreclosure of payment (an instance in which no disbursement can be made to the individual under any circumstances) is considered to be a transfer of resources as of the date of foreclosure. Such foreclosure is not considered income to the individual.

F. Policy - Home Ownership/Purchase Of A Home By A Trust

1. Home as a Resource

If the trustee of a trust which is not a resource for SSI purposes purchases and holds title to a house as a home for the beneficiary, the house would not be a resource to the beneficiary. It would also not be a resource if the beneficiary moved from the house. The trust holds legal title to the house, therefore, the eligible individual would be considered to be living in his/her own home based on having an “equitable ownership under a trust.” If the trust is a resource to the individual, the home is subject to exclusion under 81 01130.100.

2. Rent-Free Shelter

An eligible individual does not receive in-kind support and maintenance (ISM) in the form of rent-free shelter while living in a home in which he/she has an ownership interest. Accordingly, an individual with “equitable home ownership under a trust” (see 81 01120.200F.1.) does not receive rent-free shelter. Also, because we consider such an individual to have an ownership interest, payment of rent by the beneficiary to the trust has no effect on the SSI payment.

3. Receipt of Income from a Home Purchase

Since the purchase of a home by a trust for the beneficiary establishes an equitable ownership interest for the beneficiary of the trust, the purchase results in the receipt of shelter in the month of purchase that is income in the form of ISM (see 81 00835.400). This ISM is valued at no more than the presumed maximum value (PMV).

Even though the beneficiary has an ownership interest in the home and, if living in the home, does not receive ISM in the form of rent-free shelter, purchase of the home or payment of the monthly mortgage by the trust is a disbursement from the trust to a third party that results in the receipt of ISM in the form of shelter. (See 81 01120.200E.1.b.)

a. Outright Purchase of a Home

If the trust, which is not a resource, purchases the home outright and the individual lives in the home in the month of purchase, the home would be income in the form of ISM and would reduce the individual’s payment no more than the PMV in the month of purchase only, regardless of the value of the home. (See SI 01120.200E.1.b.)

b. Purchase by Mortgage or Similar Agreement

If the trust, which is not a resource, purchases the home with a mortgage and the individual lives in the home in the month of purchase, the home would be ISM in the month of purchase. Each of the subsequent monthly mortgage payments would result in the receipt of income in the form of ISM to the beneficiary living in the house, each valued at no more than the PMV (see SI 01120.200E.1.b.).

c. Additional Household Expenses

If the trust pays for other shelter or household operating expenses, these payments would be income in the form of ISM in the month the individual has use of the item (see SI 00835.350). Countable shelter expenses are listed at SI 00835.465D.

If the trust pays for improvements or renovations to the home, e.g., renovations to the bathroom to make it handicapped accessible or installation of a wheelchair ramp or assistance devices, etc., the individual does not receive income. Disbursements from the trust for improvements increase the value of the resource and, unlike household operating expenses, do not provide ISM. (See SI 01120.200E.1.c.).

G. Policy - Earnings/Additions To Trusts

1. Trust Principal Is Not a Resource

a. Trust Earnings

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. 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.

b. Additions to Principal

Additions to trust principal made directly to the trust are not income to the grantor, trustee or beneficiary. Exceptions to this rule are listed in SI 01120.200G.1.c. and SI 01120.200G.1.d.

c. Exceptions

Certain payments are non-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. Non-assignable payments include:

  Temporary Assistance to Needy Families (TANF)/Aid to Families with Dependent Children (AFDC);

  Railroad Retirement Board-administered pensions;

  Veterans pensions and assistance;

  Federal employee retirement payments (CSRS, FERS) administered by the Office of Personnel Management;

  Social Security title II and SSI payments; and

  Private pensions under the Employee Retirement Income Security Act (ERISA) (29 U.S.C.A. section 1056(d)).

d. Assignment of Income

A legally assignable payment (see 81 01120.200G.1.c. for what is not assignable), that is assigned to a trust, is income for SSI purposes unless the assignment is irrevocable. For example, child support or alimony payments paid directly to a trust as a result of a court order, are not income. If the assignment is revocable, the payment is income to the individual legally entitled to receive it.

2. Trust Principal Is a Resource

a. Trust Earnings

Trust earnings are income to the individual for whom trust principal is a resource, unless the terms of the trust make the earnings the property of another. (See 81 00810.030 for when income is counted.)

b. Additions to Principal

Additions to principal may be income or conversion of a resource, depending on the source of the funds. If funds from a third party are deposited into the trust, the funds are income to the individual. If funds are transferred from an account owned by the individual to the trust, the funds are not income, but conversion of a resource from one account to another.