In April of 2012, the Social Security Administration (“SSA”) stunned those of us who draft first-party Special Needs Trusts (“SNTs”) by adding to POMS Section SI 01120.201F.2. an example of a SNT provision that purportedly violates the “Sole Benefit Rule.” Under cloak of darkness, and without any opportunity for public comment, “Example 1” appeared as follows:
“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 the 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.”
Up until this addition, prior versions of POMS Section SI 01120.201F.2 had specifically permitted a first-party SNT to pay for such travel expenses. In reliance on those POMS, many drafting attorneys (including this author) have for many years authorized this type of disbursement in our first-party SNTs, including it in the “laundry list” of suggested permissible SNT expenditures. Starting in April 2012, the SSA took the position that the mere presence of this authority in the SNT document was sufficient to disqualify the SNT as an exempt trust under 42 U.S.C. Section 1396p(d)(4)(A), whether or not the trustee ever made such disbursements.
Panic and chaos in the SNT world quickly ensued! Previously approved SNTs were disqualified as part of annual reviews. Petitions for judicial modifications of newly non-compliant SNTs were filed across the country, seeking to purge the affected SNTs of the newly offensive provisions. Trust Protectors leaped into action to amend SNTs where authorized to do so without court involvement. (Note: the SSA also takes the position in POMS Section SI 01120.227 that it will not respect a “savings clause” provision in a SNT, e.g. “No provision of this Trust Agreement shall be recognized or given effect to the extent that such provision would render the Trust non-compliant with relevant federal or state law. . . .”) Meanwhile, practitioners and other disability advocates were contacting their elected representatives and “insiders” at the SSA with a veritable firestorm of outrage and protest.
Then during the first week of January 2013, the infamous “Example 1” disappeared under cloak of darkness as mysteriously as it had appeared back in April 2012. Thousands of SNTs have already been amended, or are still in the process of being amended, to comply with a POMS provision that is suddenly no longer in the POMS! What is a practitioner to do? Stay tuned for next week’s blog entry. – Kristen Lewis
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