PS 01825: Trusts
TN 53 (10-16)
A. PS 16-184 State Law for Empty and Dry Trusts in Atlanta Region
Date: April 25, 2016
1. Syllabus
This Regional Chief Counsel opinion provides the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
2. Opinion
QUESTION
You asked us to provide the State law related to trusts established with no funds (i.e., dry or empty trusts), for the States in Region IV to assist field offices in addressing questions regarding how such purported trusts should be considered under the Social Security Administration’s (agency) Supplemental Security Income (SSI) resource rules.
BACKGROUND
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2015).*1 “Resources” include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to use for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a). “If the individual has the right, authority or power to liquidate the property or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual . . . .” 20 C.F.R. § 416.1201(a)(1); see Program Operations Manual System (POMS) SI 01120.010.B. Even if property has no current market value, it may still be considered a resource if it is property that an individual owns and has the right to convert to cash, and the individual is not legally restricted from using the property for his or her support and maintenance. See POMS SI 01110.100.B.2, B.3.
Property held in a trust may or may not be considered a resource for SSI purposes. See POMS SI 01120.200.A.1. Generally, the agency must consider the principal or corpus of a trust established with the assets of an individual to be a resource of the individual. See Act § 1613(e)(1)-(3); POMS SI 01120.201.A.1. Trust principal is a countable resource if the individual (claimant, recipient, deemer) has legal authority to revoke or terminate the trust and use the funds to meet his or her food or shelter needs, or if the individual can direct the use of the trust principal for his or her support and maintenance under the terms of the trust. See POMS SI 01120.200.D.1.a. Also, if an individual can sell his or her beneficial interest in the trust, that interest is a resource. See POMS SI 01120.200.D.1.a. Conversely, if an individual does not have legal authority to revoke or terminate the trust or to direct the use of the trust assets for his own her own support and maintenance, the trust principal is not a resource for SSI purposes. See POMS SI 01120.200.D.2. The revocability of a trust and the ability to direct the use of trust principal depends on the terms in the trust agreement and on State law. See POMS SI 01120.200.D.2.
DISCUSSION
Alabama:
Alabama statutory law indicates a trust may be established through the conveyance of property but does not otherwise explain the property requirements to establish a trust. See Ala. Code § 19-3B-401, comment (2016). Alabama case law, however, has clarified that the existence of property held by a trustee for the benefit of a trust as an essential element of a trust. See Corretti v. First Nat’l Bank of Birmingham, 276 So. 2d 141, 147 (Ala. 1973); Gordon v. Central Park Little Boys League, 119 So. 2d 23, 27 (Ala. 1960). Thus, Alabama law does not appear to recognize a trust that is established with no funds.
Florida:
Florida statutory law indicates a trust may be created when property or a property interest is transferred to a trustee, but does not further explain the property requirements to establish a trust. See Fla. Stat. Ann. § 736.0401 (West 2016). Florida case law, however, indicates an express trust is not created until property is conveyed for the purpose of the trust. See McLemore v. McLemore, 675 So. 2d 202, 205 (Fla. Dist. Ct. App. 1996); In re Herskowitz’s Estate, 338 So. 2d 210, 212 (Fla. Dist. Ct. App. 1976). Thus, Florida law does not appear to recognize a trust that is established with no funds.
Georgia:
Georgia statutory law requires express trusts to include trust property. See Ga. Code Ann. § 53-12-20 (West 2016). Georgia case law also holds that an essential element of an express trust is the existence of trust property. See Hayes v. Clark, 530 S.E.2d 38, 39 (Ga. Ct. App. 2000); Lummus Supply Co. v. Fidelity Fed. Sav. & Loan Ass’n, 234 S.E.2d 671, 672 (Ga. Ct. App. 1977). Thus, Georgia law does not appear to recognize a trust that is established with no funds.
Kentucky:
Kentucky statutory law indicates a trust may be created through the transfer of property to a trustee or by a declaration that an owner of property has made that the owner holds identifiable property as trustee, but does not further explain the property requirements to establish a trust. See Ky. Rev. Stat. Ann. § 386B.4-010 (West 2016). Kentucky case law clarifies that a fundamental element of a trust is the devotion of trust property to the benefit of the trust beneficiaries. See Siter v. Hall, 294 S.W. 767, 770 (Ky. Ct. App. 1927). Such property must be in existence and identified to establish the trust. See DeLeuil’s Ex’rs v. DeLeuil, 74 S.W.2d 474, 477 (Ky. Ct. App. 1934). Thus, Kentucky law does not appear to recognize a trust that is established with no funds.
Mississippi:
Under the Family Trust Preservation Act of 1998, Mississippi statutory law defines trusts to mean an express trust, private or charitable, or a trust created or determined by a judgment or decree under which the trust is to be administered in the manner of an express trust. See Miss. Code Ann. § 91-9-501(a) (West 2016). Mississippi excludes from this definition of a trust the following: constructive trusts, other than those created by a judgment or decree under which the trust is to be administered in the manner of an express trust, and resulting trusts; guardianships and conservatorships; executors and administrators of decedent's estates; totten trust accounts; custodial arrangements pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act of any state; business trusts that are taxed as partnerships or corporations; investment trusts subject to regulation under the laws of this state or any other jurisdiction; common trust funds; voting trusts; security arrangements; transfers in trust for purpose of suit or enforcement of a claim of right; liquidation trusts; or any arrangement under which a person is nominee or escrowee for another. See Miss. Code Ann. § 91-9-501(b). Mississippi statutory law does not appear to contain any additional definition of a trust or further explanation regarding any property requirements to establish a trust.
Mississippi case law also does not appear to address whether there are property requirements to establish a trust. Cases that describe the essentials of an express trust do not address this question. See, e.g., Smiley v. Yllander, 105 So. 3d 1171, 1175 (Miss. Ct. App. 2012) (identifying two types of trusts, express and implied, and noting express trusts or any trust holding real property must be written, while implied may either be constructive or resulting, without addressing whether property is a prerequisite to establishing any type of trust); Sligh v. First Nat’l Bank of Holmes Cty., 735 So. 2d 963, 974 (Miss. 1999) (describing a trustee’s duties and noting guarantorships and conservatorships are not trusts); Ogle v. Durley, 77 So. 2d 688, 691-92 (Miss. 1955) (explaining that real property that was devised to a survivor in a will with condition of splitting the income of said property with another survivor did not create trust, but instead created an equitable charge). Thus, we found no Mississippi statute or case law authorizing the establishment of a trust with no funds.
North Carolina:
North Carolina statutory law indicates a trust may be established when property is transferred to or held by a trustee, but does not further describe the property requirements to establish a trust. See N.C. Gen Stat. Ann. § 36C-4-401 (West 2016). North Carolina case law, however, requires the conveyance of property in order for a trust to be created. See Bissette v. Harrod, 738 S.E.2d 792, 799 (N.C. Ct. App. 2013). Thus, North Carolina law does not appear to recognize a trust that is established with no funds.
South Carolina:
South Carolina statutory law indicates a trust may be established when property is transferred to a trustee or through a written, signed declaration from an owner of property that the owner is holding the property as a trustee, but does not further explain the property requirements to establish a trust. See S.C. Code Ann. § 62-7-401 (2016). South Carolina case law, however, indicates that a trust generally can exist only if it is funded. See Foster v. Foster, 682 S.E.2d 312, 314 (S.C. Ct. App. 2009) (listing trust res as a necessary element to establish a trust); Mayer v. M.S. Bailey & Son, 555 S.E.2d 406, 410 (S.C. Ct. App. 2001) (noting a trust generally can exist only if it is funded). Thus, South Carolina law does not appear to recognize a trust that is established with no funds.
Tennessee:
Tennessee’s Uniform Trust Code includes a provision identifying the requirements for creating a trust particularly with respect to identifying a settlor with the requisite capacity and intention, a trustee with duties to perform, and a definite beneficiary. See Tenn. Code Ann. § 35-15-402 (West 2016). However, neither this provision nor other provisions of Tennessee statutory law appear to discuss whether the trust must contain property. Under Tennessee case law, however, for an express trust to exist, the trust must contain a corpus, or property. See Myers v. Myers, 891 S.W.2d 216, 218 (Tenn. Ct. App. 1994). Thus, Tennessee law does not appear to recognize a trust that is established with no funds.
CONCLUSION
If you have any questions regarding this memorandum, please contact the undersigned at (404) 562-1094.
Sincerely,
Mary Ann Sloan
Regional Chief Counsel
By: Natalie Liem
Assistant Regional Counsel
B. PS 10-114 Effect of a Tennessee State Court Order Entered Nunc Pro Tunc Deleting Language in Trust Created for a Supplemental Security Income Recipient
DATE: July 1, 2010
1. SYLLABUS
In this case the trustees did not disclose the fact that they had established a trust in 2004 for a disabled SSI recipient. Recently, the local field office discovered it and determined it was countable because this special needs trust allowed funeral expenses to be paid prior to any Medicaid reimbursement. The trustees petitioned the state court in January 2010 to change the language to conform to the law and backdate the changes to 2004 through a nunc pro tunc order. The Regional Chief Counsel’s opinion clearly states that under Tennessee law this type of retro change can only happen as the result of an error on the part of the court, such as a typographical error. It cannot overcome the language submitted by the trustees’ legal advisors in 2004. The opinion establishes that the trust can only be excludable for SSI from the date in 2010 that the court amended it making it non-countable.
2. OPINION
QUESTION
You have asked whether the Social Security Administration (SSA) is bound by a Tennessee state court order that deleted language in a Supplemental Security Income (SSI) recipient's trust when the order was entered nunc pro tunc, that is, effective as of the date the trust was created.
OPINION
We believe the State court did not have the authority under Tennessee law to enter its order nunc pro tunc. Therefore, SSA is not bound by the court's order to the extent the order attempted to amend the trust retroactively, and SSA should consider the trust amended only as of the date the court entered its order.
BACKGROUND
SSA found Aimee S. A~ (Recipient) entitled to SSI in 1990. On December 9, 2004, Francis A. A~ and Sue E. A~ (Recipient's parents) created an "Irrevocable Supplemental Care Trust" (Trust) for Recipient pursuant to the order and under the authority of the Chancery Court of Jefferson County, Tennessee. The Trust noted Recipient's parents were the court-appointed Co-Conservators of the person of Recipient and Co-Trustees of the Trust. Recipient's parents established the Trust to hold funds payable to Recipient as the result of the sale of the residence she owned. The Trust noted the amount of funds Recipient would receive from the sale of the property "would jeopardize the benefits paid or payable for her support and care . . . ." The Trust indicated the Trust was an "irrevocable Supplemental Care Trust" section 1917(d)(4)(A) of the Social Security Act (Act). Article I of the Trust, titled Irrevocability, states that no court, conservator, trustee, or beneficiary has the right to alter, amend, revoke, or terminate the trust or any of its provisions except as expressly provided by the Trust. Article I states that if consistent with the intent of the Trust, the trustees may ask the court to amend the Trust "so that it conforms to the regulations and policies that are approved by any governing body or agency relating to Medicaid benefits or any similar successor programs as well as any other pertinent State or Federal programs."
Article IV of the Trust, titled Trust Distributions, delineates how the trustees may use the funds in the Trust and how the trustees should dispose of the Trust funds upon Recipient's death. Before the court amended the Trust, the first sentence of Paragraph H of Article IV stated that upon Recipient's death "and after payment of final expenses administrative costs, including funeral or burial expenses, the Trustees shall satisfy any valid claims for reimbursement of medical assistance benefits paid on behalf of [Recipient] during her lifetime which the Trust is legally obligated to satisfy pursuant to [section 1917(d)(4)(A) of the Act] . . . ."
In a subsequent review of Recipient's income and resources, SSA discovered the Trust. Based on the language in the Trust allowing the payment of funeral or burial expenses before the reimbursement of medical assistance benefits paid on behalf of Recipient by the State(s), SSA determined the Trust was not a valid trust under section 1917(d)(4)(A) of the Act and was a countable resource. Therefore, SSA suspended Recipient's SSI and assessed an overpayment.
After SSA informed Recipient of the suspension and overpayment, Recipient's parents filed a motion with the Chancery Court of Jefferson County, Tennessee, "to correct a scrivener[']s error in the original Trust . . . ." On January 21, 2010, the court issued an order amending the Trust. The court ordered that the Trust "is amended by deleting the words 'including any funeral or burial expenses' from the first sentence of Paragraph H of Article IV of the Trust . . . ." The court found that the amendment "is consistent with the intent of the Trust and that such language was inserted originally by error." The court further ordered that "this amendment shall be effective nunc pro tunc in that it is reflective of the parties' original intent."
DISCUSSION
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Act §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2009). "Resources" include cash or other liquid assets or any real or personal property that an individual owns and could convert to cash to be used for his or her support and maintenance. See Act § 1613; 20 C.F.R. § 416.1201(a) (2009). Generally, the corpus of a trust established with the assets of an individual is considered a resource. See Act § 1613(e)(1)-(3); see also Act § 1613(e)(6)(B) (defining corpus and assets).
However, a trust established pursuant to section 1917(d)(4)(A) of the Act, commonly referred to as a Special Needs trust, is not a resource. See Act §§ 1613(e)(5), 1917(d)(4)(A); Program Operations Manual System (POMS) SI 01120.203.B.1. A Special Needs trust must:
(1) Contain the assets of a disabled individual under age 65;
(2) Be established for the benefit of the individual by a parent, grandparent, or legal guardian of the individual, or a court;
(3) Provide that the State(s) will receive all amounts remaining in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.
See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.a. To satisfy the requirement that the State(s) be reimbursed for any medical assistance provided to the individual, the trust must list the State(s) as the first payee, with priority over payment of other debts and administrative expenses except for certain specific expenses. See POMS SI 01120.203.B.1.h. Allowable administrative expenses that may be paid from the trust prior to reimbursement of medical assistance provided by the State(s) include taxes due from the trust and reasonable fees for the administration of the trust estate. See POMS SI 01120.203.B.3.a. However, expenses and payments not permitted prior to reimbursement of medical assistance provided by the State(s) include funeral expenses. See POMS SI 01120.203.B.3.b.
In this case, the original language of the first sentence of Paragraph H of Article IV of the Trust provided that upon Recipient's death, the Trust would reimburse "medical assistance benefits paid on behalf of [Recipient] during her lifetime which the Trust is legally obligated to satisfy pursuant to" section 1917(d)(4)(A), but only "after payment of final expenses and administrative costs, including funeral or burial expenses . . . ." (Emphasis added.) As noted above, funeral expenses are not a permissible expense prior to reimbursement of medical assistance to the State(s). See POMS SI 01120.203.B.3.b. Thus the Trust as originally created did not comply with section 1917(d)(4)(A) of the Act. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.a., B.1.h, B.3.b.
On January 21, 2010, the court issued an order amending the first sentence of Paragraph H of Article IV of the Trust to delete the phrase "including funeral or burial expenses." The amendment would appear to render the Trust in compliance with the requirement that the State(s) receive all amounts remaining in the trust upon Recipient's death up to an amount equal to the total medical assistance paid by the State(s) on behalf of Recipient.2 See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.a, B.1.h. The court order stated the amendment was effective nunc pro tunc, meaning the court intended to amend the Trust effective from the date the Trust was created, i.e., December XX, 2004. However, although we believe the court's order effectively amended the trust as of the date of the court order, we do not believe the court had the authority under Tennessee law to issue a nunc pro tunc order amending the Trust effective as of the date the Trust was originally created.
Nunc pro tunc is a Latin term meaning "now for then." See Blackburn v. Blackburn, 270 S.W.3d 42, 49 n.13 (Tenn. 2008) (citing Black's Law Dictionary, 964 (5th ed. 1979)). "All courts have the right, and it is their duty, to make their records speak the truth, and a court, therefore, in a proper case, of its own motion, may order a nunc pro tunc entry to be made. . . ." Blackburn, 270 S.W.3d at 51 (quoting Rush v. Rush, 37 S.W. 13, 14 (Tenn. 1896) (quotation marks omitted)). In addition, "in a proper case, a nunc pro tunc order may be used to correct an existing decree, as well as to supply a missing decree." McCown v. Quillin, 344 S.W.2d 576, 583 (Tenn. Ct. App. 1960). However:
The error justifying a nunc pro tunc entry must have been due to the inadvertence or mistake of the court and not counsel. Moreover, an entry of a judgment nunc pro tunc should only be granted when it can be shown by clear and convincing evidence that the judgment sought is the one previously announced.
Blackburn, 270 S.W.3d at 50 (citations omitted). "[A]s a prerequisite to an entry nunc pro tunc, there generally must exist some written notation or memorandum indicating the intent of the trial court to enter the judgment on the earlier date." Id. at 54 (footnote omitted).
The general rule is that to justify a nunc pro tunc order there must exist some memorandum or notation found among the papers or books of the presiding judge, and a nunc pro tunc order will not be valid unless there is some such memorandum showing what judgment or order was actually made and these jurisdictional facts recited.
Dewees v. Sweeney, 947 S.W.2d 861, 864 (Tenn. Ct. App. 1997) (quoting Gillespie v. Martin, 109 S.W.2d 93 (Tenn. Ct. App 1937) (quotation marks omitted)).
A prerequisite for a nunc pro tunc order then, is some previous action by the court that is not adequately reflected in its record. It may not be granted to relieve an attorney from the consequences of his own failure to comply with the rules, but only to correct mistakes or omissions arising from the actions of the court itself.
Id.; see also Blackburn, 270 S.W.3d at 55 ("The error justifying a nunc pro tunc entry must have been due to the inadvertence or mistake of the court, not the attorneys or parties"). "Therefore, when determining whether it should enter an order nunc pro tunc, the trial court should generally refer only to written notations or memoranda indicating the court's intent to enter the judgment on a specified earlier date." Blackburn, 270 S.W.3d at 55.
"Although the trial court has the inherent authority to enter [an order] nunc pro tunc to amend or rectify the record, a nunc pro tunc [order] may not be entered in an attempt to make the record reflect what should have happened, rather than what actually did occur." Blackburn, 270 S.W.3d at 55-56. "A 'nunc pro tunc order' can only be made when the thing ordered has previously been allowed, but by inadvertence has not been entered. It applies only to orders of court, and never to action of counsel." Cantrell v. Humana of Tenn., Inc., 617 S.W.2d 901, 902 (Tenn. Ct. App. 1981) (quoting Grizzard v. Fite, 191 S.W. 969 (Tenn. 1916)).
In this case, the information provided indicates the "scrivener's error" the court corrected in its January 2010 order was the result of an error or negligence by Recipient's parents or the attorney for Recipient's parents who prepared the Trust document. The court noted the prohibited language allowing for the payment of funeral or burial expenses before reimbursement of State medical assistance payments was "inserted originally by error" and it entered its order nunc pro tunc to reflect "the parties' original intent." Nothing in the court's order suggests that the error was due to a mistake by the court, as required for entry of an order nunc pro tunc. See Blackburn, 270 S.W.3d at 50, 54-55; Dewees, 947 S.W.2d at 864; Cantrell, 617 S.W.2d at 902. Moreover, the information provided, including the court order and the Trust document, does not provide clear and convincing evidence that the court intended the Trust to exclude the prohibited language when the Trust was originally created. See Blackburn, 270 S.W.3d at 50; Dewees, 947 S.W.2d at 864. The court could not enter its order nunc pro tunc in an attempt to make the Trust reflect what should have been omitted when the Trust was originally created, rather than what was actually included in the Trust. See Blackburn, 270 S.W.3d at 55-56. Therefore, we believe the court did not have the authority to enter its order nunc pro tunc.
We recognize SSA's policy that although SSA is not bound by the decision of a State court in a proceeding to which SSA was not a party, SSA is not free to ignore an adjudication of a State court where the following prerequisites are found: (1) an issue in a claim for Social Security benefits previously has been determined by a State court of competent jurisdiction; (2) this issue was genuinely contested before the State court by parties with opposing interests; (3) the issue falls within the general category of domestic relations law; and (4) the resolution by the State trial court is consistent with the law enunciated by the highest court in the State. See Social Security Ruling (SSR) 83-37c (adopting Gray v. Richardson, 474 F.2d 1370 (6th Cir. 1973)). However, the order in this case does not meet all of the prerequisites in SSR 83-37c. The court's order was not genuinely contested by parties with opposing interests, and the issue addressed by the court's order did not fall within the general category of domestic relations law. Moreover, as discussed above, the court's entry of a nunc pro tunc order was not consistent with Tennessee law. Thus, SSA was not bound under SSR 83-37c, or any other legal authority, to accept the nunc pro tunc aspect of the court's order.
CONCLUSION We believe SSA is not bound by the court's order entered nunc pro tunc purporting to amend the Trust as of the date the Trust was originally created. SSA should consider the Trust amended as of the date of the court order—January 21, 2010—and not before that date.
Very Truly Yours
Mary A. S~
Regional Chief Counsel
By: Brian C. H~
Assistant Regional Counsel
Footnotes:
. * All references to Code of Federal Regulations are to the 2015 edition.
. You did not ask us to provide an opinion regarding whether the Trust meets the other requirements of a Special Needs trust in section 1917(d)(4)(A). However, based on the documents and other information provided, the trust appears to comply with section 1917(d)(4)(A) because Recipient is a disabled and under age sixty-five, the Trust contains Recipient's assets, and the Trust was established for Recipient's benefit by her parents. See Act § 1917(d)(4)(A); POMS SI 01120.203.B.1.a. Of course, if SSA determines the Trust meets the requirements of a Special Needs trust, SSA still must determine if the Trust is a resource under the regular resource rules. See POMS SI 01120.203.B.1.a.