Responding to criticism from advocates that the Social Security Administration (SSA) was unfairly refusing to allow court-established (d)(4)(A) trusts to qualify as exempt resources for Supplemental Security Income (SSI) purposes, the SSA has issued an Administrative Message clarifying its policy regarding these trusts and ordering officials to approve the trusts if they meet the other (d)(4)(A) requirements and were not created prior to the order issued by the court.
Apparently based on the SSA's Trust Training Fact Guide, some SSA offices have recently been refusing to approve court-established (d)(4)(A) trusts because they were not created by a court "order." Since people with disabilities are unable to establish their own (d)(4)(A) trusts, if the SSA's position were uniformly applied it would mean that no court could ever establish a (d)(4)(A) trust unless it did so on its own initiative.
The SSA has now issued an Administrative Message, first published by Illinois attorney and Social Security expert Avram L. Sacks on the NAELA members listserv, explaining that the rejection of court-established (4)(d)(A) trusts is inappropriate when the trust was not finalized prior to the court's action. The message states that "[i]n the case of a special needs trust established through the actions of a court, the creation of the trust must be required by a court order for the exception in section 1917(d)(4)(A) of the Act to apply. That is the special needs trust exception can be met when courts approve petitions and establish trusts by court order, so long as the creation of the trust has not been completed before, the order is issued by the court. Court approval of an already created special needs trust is not sufficient for the trust to qualify for the exception. The court must specifically either establish the trust or order the establishment of the trust."
The message goes on to give four clarifying examples of situations where trusts may or may not fit this criteria. In the first example, an SSI beneficiary's sister petitions the court to create and order the funding of a trust to hold the beneficiary's inheritance. The sister provides a draft trust to the court. When the court issues an order approving the petition and ordering the creation of the trust, it will meet the requirements of SI 01120.203B.1.f. In the second example, a judge orders the creation of a trust to hold a settlement, and the trust document lists the settlement as the trust's original corpus. This trust also passes muster with the SSA. In the two negative examples, the SSA claims that when a court approves a trust that has already been created ahead of time, or when a court amends a defective trust with a nunc pro tunc order to make the amendment retroactive to the date the trust was originally created, the trusts will not qualify for the special needs trust exception.
Click here to read the SSA's entire message.
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