Posts Tagged ‘POMS’

Special Needs Trust Defective Because Arbitrary Rules Not Followed

JULY 22, 2013 VOLUME 20 NUMBER 27

We often find ourselves reassuring clients that the law makes sense. It may not be obvious or intuitive, but we can usually explain why some legal principle developed the way it did, and why it would be a bad thing if it were otherwise — even if that might mean problems for a given case in which we are involved. Once in a while, though, the system is just arbitrary, foolish and misguided. What really hurts is when a judge declares that an arbitrary corner of the law should be that way because it is not arbitrary.

Case in point (literally): Sandi Dowling (not her real name), a 26-year-old woman living in South Dakota. Sandi was in a terrible auto accident in 2006, when she was 19. As a result of a traumatic brain injury suffered in that accident, Sandi qualified for Supplemental Security Income (SSI) and her state’s Medicaid program. She also filed a civil lawsuit, seeking to recover at least some of the costs of her care, pain, suffering and future lost income.

Sandi gave her parents a power of attorney so that they could handle her lawsuit and any other financial issues she might face. So far, there is nothing in Sandi’s story that would not be faced by thousands of other young people injured in an auto accident.

Then Sandi’s lawsuit was settled. She netted $429,259.41 from the settlement — a sum which would normally knock her off SSI and probably cost her Medicaid eligibility, as well. That amount, though large, was not enough to provide the care Sandi actually needed, however, and so it was important for her to continue to qualify for SSI and Medicaid.

Fortunately, there is a way to do that. A self-settled special needs trust can be set up for someone in Sandi’s circumstance, and the money transferred to it. The transfer is not disqualifying, and the contents of the trust are not counted as available for SSI or Medicaid eligibility purposes. But the trust has to be set up properly.

One key rule about such trusts: they must be established by a parent, grandparent, guardian or court. Fortunately, Sandi’s parents were both deeply involved in her life and her care; they could sign the trust documents, and they did. They established the trust and, using their power of attorney, transferred her settlement proceeds to the trust’s name.

Imagine their surprise when the Social Security Administration ruled that the trust disqualified Sandi from SSI benefits. The eligibility worker, relying on directives from the SSA central office, ruled that when her parents established Sandi’s trust they weren’t her parents — they were her agents under the power of attorney. Her SSI was cut off (and, presumably, her Medicaid eligibility as well) and she was ordered to repay Social Security the money she had received since her personal injury settlement arrived.

Two years of legal wrangling ensued, with the Social Security Administration insisting that it makes sense to rule that Sandi’s parents weren’t her parents when they signed the trust. An Administrative Law Judge did (graciously) rule that she did not have to repay the money she had received before the family received notice of the overpayment, but the denial of eligibility persisted.

Finally, in an attempt to resolve the impasse, Sandi and her parents turned to the local courts. They sought and obtained a court order approving the trust and amending it in some technical ways; the judge also ruled that the modification of the trust should date back to the original trust date (what is called “nunc pro tunc” in lawyer-talk). Problem solved, right?

Not at all. The Social Security Administration, continuing to apply its rules rather than the English language, ruled that the court had not “established” the trust, but only “approved” it. Two more years of legal wrangling ensued, with the Social Security Administration insisting that this interpretation of language also made sense.

Eventually Sandi and her parents exhausted their appeals through the Social Security Administration, and they finally turned to the Federal District Court in South Dakota. They filed an appeal of the final Social Security ruling, and argued that it was arbitrary and capricious of Social Security to insist that (a) Sandi’s parents weren’t her parents when they signed the trust and (b) the local court had not “established” the trust but only “approved” it. Finally, they thought, they were going to get a decision from someone who would apply some common sense rather than absurd rule interpretations.

There’s still no joy in Madison. District Judge Karen E. Schreier upheld the Social Security position, finding that its interpretation of the language of the federal statute was not arbitrary. In fact, she held, having clear rules is the opposite of arbitrary — never mind that the clear rules are silly. Draper v. Colvin, July 10, 2013.

What are the lessons to be learned from Sandi’s story, and why are we telling you about it? Normally we do not report on trial court decisions here — and even though this is an appeal from a Social Security ruling, it is the lowest level of the federal court review of that ruling. It might well be appealed; in the meantime, it should not be cited as precedent in other cases (and especially in other jurisdictions, like the Federal District Courts in Arizona). But it still gives us pause and an opportunity to point out several important principles:

  1. Creating (“establishing,” in the language of the federal statute) special needs trusts can be difficult to do correctly, and technical rules have to be followed.
  2. Though it may seem obvious that something ought to be done in an efficient, effective and legal way, sometimes the requirements are actually counter-intuitive, or are interpreted in a counter-intuitive way.
  3. The Social Security Administration (and, often, state Medicaid agencies) are always on the lookout for ways to challenge special needs trusts.
  4. Doing things wrong not only causes problems with government programs, but is hard to fix. Witness Sandi’s odyssey, with four years of litigation and multiple attempts to satisfy Social Security’s arcane rules — all the while with Sandi not qualifying for or receiving SSI until first the agency and then the courts work through their interpretations.
  5. Even when a fix is finally found, it likely will not relate back to the original date of the problem. Legal expertise is important early and throughout the administration of a special needs trust.
  6. Much of the court opinion in Sandi’s case deals with the language of the POMS — Social Security’s “Program Operations Manual System.” That’s where the worst language offenders live, and it is crucial for practitioners to be familiar with the structure, holdings and, yes, silliness built into the POMS.

“When in doubt about who’s to blame,” Craig Ferguson is reported to have said, “blame the English.” We aren’t sure he meant the language, but still it seems apt.

 

Can a Special Needs Trust Pay Credit Card Bills? Security Deposit?

JANUARY 21, 2013 VOLUME 20 NUMBER 3
Administering a “special needs” trust can be a challenge. The rules often seem vague, and they occasionally shift. What may seem like a simple question might actually involve layers of complexity. Sometimes an expenditure might be permissible under the rules of, say, the Social Security Administration, but not acceptable to AHCCCS, the Arizona Medicaid agency — or vice versa. Trustees work in an environment of many constantly-moving parts.

Take two questions we have been asked lately:

I am trustee of a self-settled special needs trust for my sister. Can I pay her credit card bills?

Maybe (don’t you just love lawyers’ answers?). Let’s break the question down a little bit.

First, have identified the trust as “self-settled.” That means the money once belonged to your sister (it might have been an inheritance, or a personal injury settlement, or her accumulated wealth before she became disabled). That also means the rules are somewhat more restrictive.

We will assume that the bills are for a credit card in her name alone. If the card belongs to someone else, the rules may be different. Not many special needs trust beneficiaries can qualify for a credit card; when they can, it can be a very useful way to get things paid for (as you will soon see).

The next question requires a look a the trust document itself. It might be that it prohibits payments like the one you would like to make. That would be uncommon, but not unheard of. We will assume that the trust does not expressly prohibit paying her credit card bills.

What benefits does your sister receive? Social Security Disability and Medicare? No problem. Supplemental Security Income (SSI) and AHCCCS (Medicaid)? Could be a problem.

Next we need to know what was charged to the credit card. Was it food or shelter? If it was used for meals at restaurants, or grocery shopping, or for utility bills, you probably do not want to pay the credit card bill from the trust. If you do (and assuming the trust permits it) then you will face a reduction of any SSI she receives, and possible loss of AHCCCS benefits.

Were the credit card bills for clothes, medical supplies, gasoline for her vehicle, even car repairs? There is probably no problem with paying the credit card statement. Even home repairs should be OK in most cases (just not rent, mortgage, utilities, etc. — and the rules might be different if anyone else lives with your sister).

As you can see, what started out as a simple question turns out to have a lot of complexity. You might want to talk with a lawyer about your sister could use the credit card. When it works, though, it can be quite a boon — it is an easy way to get gas into her car and clothes on her back.

Can my special needs trust pay the security deposit on my new apartment?

What an interesting question. We think the answer is probably “yes.”

Once again we need to look at the trust document itself. Was it funded with your own money (like a personal injury settlement), or was the trust set up by a relative or friend with their own money? Is there language prohibiting payment for anything related to your apartment?

Assuming no trust language prohibits the payment, we can turn to the effect such a payment would have on your benefits. Social Security Disability and Medicare? Once again, no problem. SSI and AHCCCS/Medicaid? Your benefits might be reduced, but the payment can probably be made.

The key question is whether a “security deposit” is “rent.” Arguably, it is not — it is advance payment for cleaning. A special needs trust — even a self-settled special needs trust — can pay for cleaning. Social Security’s rules treat payment of “rent” as what’s called “In-Kind Support and Maintenance (ISM).” This payment, we think, should not be characterized as ISM.

If it is not ISM, then it should have no effect on your SSI or your AHCCCS benefits. If it does, it might simply reduce your SSI payment (by the amount of the deposit, but capped at about $250). So long as you still get SSI it should not have any effect on your AHCCCS benefits.

Are these rules unnecessarily complicated? Yes. Does it sometimes end up costing more in legal fees to figure out what to do than it would to just pay the bills? Yes. Welcome to the complex world of special needs trust administration. Would it be possible to write simplified rules that allowed limited use of special needs trust funds while saving a bundle on administrative expenses? Yes — but please don’t hold your breath while waiting for them.

Support Can Be Awarded After Child’s Majority In Some Cases

APRIL 12, 2010  VOLUME 17, NUMBER 12

Most people are familiar with modern concepts of child support. It can be awarded to the custodial parent in a divorce proceeding. The amount of support is usually calculated by reference to standardized computations promulgated by the courts. A support award usually includes an automatic assignment of wages to help ensure the payments get made. It ends when the child reaches age 18. Wait — that last one is not necessarily correct.

Most states (Arizona included) permit courts to order continued child support for an adult child with a serious mental or physical disability. The rules vary from state to state, but Arizona’s approach is not particularly unusual. If you are concerned about this issue because you know about an adult child with a disability living in another state, be sure to check that state’s laws before assuming the Arizona rules are identical.

In Arizona, child support can be awarded to an adult child with a disability if:

  • The child is severely disabled, either mentally or physically, and is “unable to live independently and be self-supporting,”
  • The disability began before the child turned eighteen, and
  • The court considers the financial resources and needs of the child and both parents, along with the effect of the disability on those needs.

[There are actually two circumstances in which child support can extend past age 18 under Arizona law. The court can also continue child support until age 19 if the child is still in high school.]

See Arizona Revised Statutes section 25-320(E) for the precise language of Arizona law. Note that the law does not require the parents to be divorced, separated or even pending divorce or separation. A court proceeding can be initiated solely for the purposes of establishing support requirements, and the resulting order can be directed against either or both parents — including against a parent with whom the adult child lives. Note also that the support request does not have to be filed before the child reaches age 18, though the disability itself must begin before that age.

A recent Arizona Court of Appeals case dealt with the issue of support for an adult disabled child. In Gersten v. Gersten, decided November 17, 2009, the appellate court dealt with a trial court decision denying support payments to the father of an adult child with a disability only because the father had not been appointed as his son’s guardian or conservator. The Court of Appeals directed that the matter be returned to the trial court, and the son’s interests considered either by having a guardian or conservator appointed or by joining him as an actual party to the divorce proceedings.

One common problem when support is ordered paid to an adult child with a disability (or to the parent with whom the child lives): the support will be treated as income for Supplemental Security Income (SSI) eligibility purposes. See, for example, the Social Security Administration’s POMS section SI 00830.420(C), which sets out the procedure an SSI eligibility worker must follow when assessing child support payments for an adult child with a disability.

That may mean that the support order reduces the beneficiary’s check by almost as much as the support order, and it might even result in elimination of SSI. That, in turn, might lead to the loss of Medicaid benefits paid for through the Arizona Health Care Cost Containment System (AHCCCS).

In some cases it might be possible to maintain eligibility for public benefits and still seek an award of support for the benefit of an adult child with a disability. A special needs trust for the benefit of the child support recipient can be set up (perhaps even by the court ordering the support) and the monthly payments assigned to the trust. The process is not always simple or straightforward, and an experienced attorney should be consulted.

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