Trust Creation

Effect of New POMS Rules on Trust Administration

What is POMS?
stands for Program Operations Manual System. It is a Social Security manual whose purpose is to instruct Social Security personnel on the interpretation to be given provisions of the Social Security Act. Although the POMS is not law, it is important to know because it is the Social Security Administration’s interpretation of the law.

Many courts have held that SSA’s interpretation of the law is entitled to great weight in the administration of Social Security law. See, Neikirk v. Apfel, 104 F.Supp.2d 1291 (D.Colo. 2000).

What does POMS apply to?
Technically, POMS only applies to Social Security administered programs. For purposes of reviewing the law of trusts, it technically only applies to the Supplemental Security Income (SSI) program.

Does POMS apply to Medicaid?
Yes and no. If a person is eligible for SSI, that person is automatically eligible for Medicaid. Thus, if a person has a trust set up for them that trust must comply with Social Security requirements on trusts. If it does not then that person will not get SSI or Medicaid either. Sometimes Medicaid will attempt to apply different rules on trusts than those applied by Social Security. If a person is on SSI, Medicaid must apply the same rules. See, Ramey v. Reinertson, 268 F.3d 955 (10th Cir. 2001).

If a person is not getting SSI Medicaid, then Medicaid’s rules control to the extent they have specific rules. If Medicaid does not have specific rules, then the POMS is good authority for the Medicaid program. It is a general requirement in Medicaid law that Medicaid cannot administer its program in a manner more restrictive than SSA administers the SSI program.

Although this program is primarily focused on POMS, where there are notable differences between Medicaid and Social Security, those differences will be highlighted under "Practice Notes". The new POMS requirements will be displayed in italics whenever they appear in the text.

TRUST CREATION

Third Party Trusts

NO STATUTORY REQUIREMENTS. Section 2056 of the Foster Care Independence Act of 1999 (P.L. 106-169), codified at 42 U.S.C. § 1383e(5) established rules for disability trusts, pooled trusts, and other trusts composed of a disabled person’s own assets. That statute, however, does not apply to trusts established solely with the assets of another, i.e., a third party.

THIRD PARTY TRUST RULES. Although there is no statute that instructs us on how to establish a third party trust, there do exist policy guidelines on how to evaluate these trusts in order to determine if the trust is a resource to the disabled individual or is not a resource.

ASSETS TEST. SSA instructs that the assets must legally belong to the third party. If they do not, the trust is considered a grantor trust. Section 200.B.(17).

NO TERMINATION. If the disabled individual can receive the corpus on trust termination, the trust is countable. Section 200.B.(20); 200.D.1.b.

NO CONTROL. If the disabled individual can direct the trustee, then the trust is countable. Section 200.D.1.a.

NO MARKETABILITY. SSA states that if an individual can sell his interest in a trust, it is a countable interest to the extent it can be sold for a lump sum. Section 200.D.1.a.

NO IRREVOCABILITY REQUIREMENT. There is no SSA requirement that a third party trust be irrevocable by the third party grantor. However, for tax and other reasons, most third party trusts are irrevocable.

TESTAMENTARY TRUSTS. Trusts established in wills are analyzed no differently than stand alone trusts in the POMS. However, SSA personnel generally seem to have problems interpreting testamentary trusts because of their lack of training. They seem to understand a stand alone trust better than testamentary trusts. For this reason, it is generally better practice to create a stand alone trust and use that trust as a beneficiary in the will for a disabled beneficiary.

Next: Grantor Trusts and Medicaid Exception Trusts