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Recent Activity concerning Sole Benefit and Compensation of Family Members

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Recent Activity concerning Sole Benefit and Compensation of Family Members

On May 17th, 2012 POMS SI 01120.201.2 was revised with a focus on redefining sole benefit of a self-settled trust with a special focus on compensation made to family members. In addition, there are several court cases such as the recent Lewis V. Alexander case in the third circuit that are struggling with defining what “Sole Benefit” really means. See http://www.ca3.uscourts.gov/opinarch/113439p.pdf

 

Definition of Sole Benefit

One of the basic concepts of a self-settled special needs trust as well as a sole benefit special needs trust is that distributions must be made for the sole benefit of the beneficiary. As we analyze the concept of sole benefit, one needs to distinguish between self-settled trusts, sole benefit special needs trusts and the typical estate planning or 3rd Party special needs trust.

A self-settled trust, whether it is a D4A or D4C trust by statute requires a lien upon the death of the beneficiary for any Medicaid spent on behalf of the beneficiary for medical care. In addition, the D4A and D4C statutes are exceptions to the Foster Care Independence Act that penalizes transfers for less than fair market value if an SSI recipient disposes of assets for less than fair market value. What SSA and CMS are rightfully concerned about are situations when a self-settled trust makes gifts to a third party.

A sole benefit special needs trust is typically used when a parent transfers their assets to their disabled child in order to qualify themselves (QUESTION!!!  ‘themselves’ as the parents or ‘them’ as in the dis. child?) for SSI or Medicaid benefits.  Because the government prohibits the disposal of assets for less than fair market value, SSA and CMS have a rightful concern.  It is important to note, however that the trustee is making a gift to a third party.  Clearly, a third party special needs trust has no such lien or limitation and therefore should not be subject to the sole benefit restriction.

The POMS lists this definition from SI 01120.201.2 as follows;

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…..

This section goes on to say;

This should not routinely be questioned unless compensation is being provided to a family member…..

 

Areas of Concern

The major concern of this POMS focuses on compensation for family members. For instance, the newly revised section states the following:

Example 1 – Trust provision that is not for the sole benefit of the trust beneficiary

An SSI recipient is awarded a court-ordered settlement that is placed in an irrevocable trust of which he is the beneficiary. The trust document includes a provision permitting the trustee to use trust funds in order to pay for the SSI recipient’s family to fly from Idaho and visit him in Nebraska. The trust is not established for the sole benefit of the trust beneficiary, since it permits the trustee to use trust funds in a manner that will financially benefit the SSI recipient’s family.

 

Recommended Approach – Drafting of D4A and D4C Trusts:

Keep in mind that the POMS are merely guidance for eligibility workers to help them deal with situations they are unfamiliar with. While it does not have the force of law, the POMS have a great influence on the special needs trust community, and most specifically for the drafting attorney and trustee trying to make sense of this this language. While there is a danger of overreacting, this issue is by no means resolved from this new language. On top of that, some states, such as California has not seen intense focus on this issue by either the Federal SSA office or our Medi-Cal departments, while other states like New Mexico (with the aberrant Hobbs case) have become battleground states.

 

For Self Settled Trusts – Less is More

The trend of administrative agencies to try to define what they believe is a special need is troubling.  As advocates we should not surrender early. I personally do not believe that the issue is not 3rd party trusts where sole benefit…(something is missing here).  The better practitioner will do their best within this legal document and all supporting documents to define what the objective is of the grantor.

Whether for statutory trusts like D4A and D4C, or sole benefit trusts, the goal is not get too clever, but to stick to the statutory mandates.

For instance, I have never found the use of the special needs trust laundry list particularly useful. The ‘laundry list’ is the term used for that long list within the trust that usually begins “A special need trust includes ……….”

My reasoning begins with the fact that such a list opens up ridiculous discussions about what is or what is not a special need. Let’s be perfectly clear, THERE IS NO SUCH THING AS A SPECIAL NEED – sorry to shout but I think in this case it is appropriate. Basically, every need is ‘special.’ As a special need is whatever need the beneficiary might have; ideally delivered in a manner that is neither considered “income” or a “countable resource”, at least as far as any needs based benefit program that the beneficiary might be eligible for would consider.

 

Should the Trustee Stop Making Distributions to Family Members?

The most disturbing part of this POMS is the following example:

Example 2 – Trust provision that is not for the sole benefit of the trust beneficiary

An SSI recipient is awarded a court-ordered settlement that is placed in an irrevocable trust of which he is the beneficiary. The trust document includes a provision permitting the trustee to use trust funds in order to pay for the SSI recipient’s family to fly from Idaho and visit him in Nebraska. The trust is not established for the sole benefit of the trust beneficiary, since it permits the trustee to use trust funds in a manner that will financially benefit the SSI recipient’s family.

As an advocate, as counsel for many families and trustees, and as a trustee of a pooled trust I am neither ready to stop making distributions nor am I willing to counsel my clients to stop making distributions to family members no matter what circumstance. I do believe in the need to document why compensation to a family member of a loved one with special needs for the value of their services when it is “above and beyond their legal duties” is not only appropriate, it is highly desirable, depending on the case.

As the example copied from the new POMS suggests, all cases where a family member comes to visit their disabled loved one is presumed to be a financial benefit to that family member and not for the sole benefit of the beneficiary. Nebraska is a fine place – but quite frankly if I have to take time from my life to do a safety check on my disabled sister – I don’t really see where expenditures that are directly connected with that duty are inappropriate. If I take advantage of the situation by having my sister’s special needs trust pay all my expenses for a fun filled vacation to beautiful Nebraska primarily to visit the world’s largest ball of string, and take the time to drop in to see my sister for 15 minutes, I can understand why the government could have a problem with it. On the other hand, if I take time from my personal and professional life to visit my sister for a couple of days to ensure that she is safe, especially if there is a recommendation from an independent third party such as my sister’s doctor or care manager that the visit is necessary to ensure her safety, I believe the expenditure is appropriate, legal and moral.  Under these circumstances, if I pay for the admission to see that amazing ball of string myself for a few minutes, that wouldn’t seem like a deal breaker to me.

The reality is that there are compelling reasons depending on the situation why a trustee should pay for brother to fly to Nebraska to visit their disabled sister, especially if the sister is vulnerable to abuse or neglect. The key to the prevention of abuse and neglect is to avoid having a vulnerable disabled person from being isolated.[1] The best way to do this is to have someone that is in tune with the disabled person’s behavior performing spot checks, ideally unannounced.

This has never been more important than in the present day. For instance, in California we have what is recognized as one of the best service systems in the country for persons with developmental disabilities.  Even so, it is not unusual for a case manager to have a case load of 80 or more. It simply is unrealistic to expect that the case worker is going to make spot safety checks on every person they oversee and ensure that the person is safe and not subject to abuse and neglect. In fact, it is likely that the case manager will not see the majority of their people in their residential or day program setting. The reality is that many persons in residential programs have no affective oversight to identify when a resident might be subject to abuse or neglect.

In California we have almost no system to protect persons with mental illness and all too often family are the protection this population has from abuse and neglect. An outright ban of paying for family visits will compromise that persons safety.

The additional point may be made that family could be the ideal entity for making safety checks. They are familiar with the baseline behavior of their disabled family member and are often more in tune with behavioral changes. Let me share two very real examples.  A brother goes to visit his sister with a disability at her residence.  He notices that his sister puts her hands over her head in a defensive manner that indicates she is trying to protect herself.  This is a compelling clue that something is wrong, especially if she never exhibited that behavior before.  In our next example a brother decides to pay a surprise visit and observes that his sister seems to be overmedicated, or possibly restrained in a chair and set in front of a TV set which is blaring in a language the that sister doesn’t speak.  Both circumstances call for immediate attention and action.

 

Document, Document, Document

To address compensation for family members provide care or advocacy, the key is to document the need for such support. I often utilize a professional care manager to write the assessment. In that assessment I want to know the need for advocacy; what it would cost to pay for the service privately; what is the level of care that family member is giving; and what that level of care would cost on the open market.

For readers of this memo that are not familiar with care managers, I find them at www.caremanager.org . It is important to note that not every care manager is familiar with the needs of persons with disabilities, but many are. You need to interview the care manager and make sure they have the background you need. The primary focus of most care managers is on seniors, but many care managers have experience with a wide variety of disabilities including mental health and developmental disabilities. On the other hand, this relationship is invaluable and with the increased need for documentation is rapidly becoming a necessity.

 

Educate Trustees and Family Members about the Change in Focus

I receive many requests from family to allow self-settled trust funds to cover safety visits to the special needs trust beneficiary. Trustees and family members need to be informed that payment for family visits or services provided by families are considered ‘suspect’ by SSA.  Having the self-settled special needs trust pay for family provided services is a great risk. Families need to be informed that if the trustee decides to make the expenditure, more documentation is needed than ever before, and there is a greater risk that an eligibility worker following this new POMS may go so far as to invalidate the trust. For a multimillion dollar trust, my position as legal counsel might be “come and get me”. A determination of disqualification may need to be litigated.  If we cannot change this POMS, there is always the courts and I do not believe that this directive will stand. For a smaller trust, the disruption could be too much to endure. Common sense needs to be the rule here, and being a good trustee always involves managing risk.

 

Solicit Help from the Advocacy Community

As an advocate for the rights of persons with disabilities and their families, I believe there is a huge issue that needs to be addressed.

My wife and I travel across the country visiting disability groups and professional organizations that serve persons with disabilities. We are seeing an almost universal reduction in government based service providers that traditionally served to protect our disabled loved ones. More and more families are being called to fill in those gaps. This POMS, no matter how well intentioned to comply with the law, is not only incorrect but also has serious consequences to the safety and quality of life to the special needs trust beneficiaries.

We in the special needs trust community need to bring this to the attention of organizations like the ARC, NAMI, and the World Institute on Disabilities and to solicit them to better educate the SSA about why this interpretation must be revised to better reflect the reality of the world we live in.

Quite honestly, this is an opportunity to build meaningful dialog about a greater issue, namely how we as a nation will provide the necessary support for persons with disabilities to ensure that they have quality of life in an environment of decreasing supports services for our most vulnerable citizens. This POMS needs to be redone to reflect the real issue, which is how to identify when an expenditure is for the sole benefit of a self-settled trust or sole benefit trust, and when it is better identified as a gift?

The good news is that the SSA staff responsible for writing these POMS is quite open to dialog. My challenge to the readers of this memo is to look beyond the short term need of how to counsel clients or manage trust, and focus on engaging all stakeholders in meaningful dialog.  We want not only to change this directive, but to stimulate systemic changes.

 

Stephen W. Dale

 

THE FOLLOWING IS THE SPECIFIC SECTION OF THE POMS WITH A LINK TO THE SSA WEBSITE

POMS SI 01120.201.2 – http://policy.ssa.gov/POMS.nsf/lnx/0501120201

Reads as follows;

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. 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:

  • reimbursement to the State, after the individual’s death, for medical expenses paid on the individual’s behalf (see SI 01120.203B.1.f. and SI 01120.203B.2.g.);
  • upon death of the beneficiary, retention of a certain percentage of the funds in a “pooled trust” established through the actions of a nonprofit association in accordance with the trust agreement (see SI 01120.203B.2.); and
  • transfer of the remaining trust corpus to a residual trust beneficiary after the individual’s death.

Example 1 – Trust provision that is not for the sole benefit of the trust beneficiary

An SSI recipient is awarded a court-ordered settlement that is placed in an irrevocable trust of which he is the beneficiary. The trust document includes a provision permitting the trustee to use trust funds in order to pay for the SSI recipient’s family to fly from Idaho and visit him in Nebraska. The trust is not established for the sole benefit of the trust beneficiary, since it permits the trustee to use trust funds in a manner that will financially benefit the SSI recipient’s family.

Example 2 – Trust provision that is for the sole benefit of the trust beneficiary

The guardian of an SSI recipient uses the recipient’s savings to establish an irrevocable trust, naming the SSI recipient as the trust beneficiary. The trust document includes a provision permitting the trustee to use trust funds in order to pay for attendant care needed by the SSI recipient on a daily basis. The trust is established for the sole benefit of the trust beneficiary, since payments made for attendant care are considered a payment to a third party for goods or services.

 


[1] It should be noted that the disability community is diverse.  Many persons with disabilities are effective at being their own advocates. On the other hand, persons with disabilities and seniors with cognitive impairments or difficulty communicating warrant a greater need for oversight.