by Elizabeth Q. Boehmcke
Practitioners who regularly work with special needs clients are probably aware that the Social Security Administration ("SSA") released revisions to the Program Operating Manual System ("POMS") on April 30, 2018. But since many of us are still processing the revisions, I hope to highlight some of them for those of us who are between CLE sessions.
These revisions may come as welcome news to attorneys who draft special needs trusts or advise trustees of special needs trusts. I am unfortunately limited herein primarily to highlighting the sole benefit rule revisions. However, there were a number of important changes and if you want more details, you may want to review the full article I drafted, which you can find here.
The revised POMS offer significantly more flexibility in the administration of first party special needs trusts established after January 1, 2000, especially in relation to the "sole benefit rule." The "sole benefit rule" which governs the administration of first party special needs trusts has caused concern in the past because of fears that if a person other than the beneficiary of the trust received even an incidental benefit from a trust asset or distribution, the beneficiary's SSI or Medicaid would be negatively impacted. This could be a particularly thorny problem where the beneficiary is a minor and living with parents of very modest means.
POMS SI 01120.201.F.3.a now provides that distributions to third-parties for goods and services "must be for the primary benefit of the trust beneficiary." The SSA seems to be acknowledging that the beneficiary is unlikely to live in a bubble with no interaction with other people or family members and that such people will inevitably receive some "collateral benefit" from trust assets or distributions for the benefit of the beneficiary. While there are limits to the amount of benefit that another person can receive from a first party special needs trust, it should be possible for others to have occasional use of assets without causing concern.
In addition, the revisions allow third party care providers to be family members, nonfamily members or professional service companies, clarifying rules which had been interpreted differently in different regions of the country. In some areas, family members were required to have medical training to be compensated for care and in areas where parents had a continuing duty of support of disabled children, there were questions as to whether paying such parents for care violated the sole benefit rule. Now, it is clear that companion care, as well as medical care, are legitimate costs for a special needs trust to pay. Furthermore, eligibility workers are specifically instructed not to request evidence of medical training or certification for family members who are receiving payment for care. Finally, guidance is provided as to how to determine reasonable compensation within the meaning of these guidelines. Thus, in addition to the time and effort involved in the provision of services, it is also appropriate to consider the prevailing rate in the area for such services.
Another area of clarification is that a special needs trust can pay for the travel expenses of a person whose assistance or services are required to enable the beneficiary to travel without violating the sole benefit rule. Such expenses can include transportation, food and lodging. Thus, for instance, it is reasonable for a special needs trust to pay for a parent to accompany his or her minor child who is the beneficiary of the trust on vacation to provide care and supervision. However, it is very clear that the trust is not to pay the travel expenses of the parent's other minor children even if the parent cannot afford to pay for such children to travel or stay home otherwise.
Importantly for trustees charged with administering a special needs trust, the SSA has clarified that it does not violate the sole benefit rule for the trust to pay travel expenses for a third party who visits a beneficiary in a long-term care facility to check on the beneficiary's living arrangements or if necessary for the trustee to exercise his or her fiduciary duties, to ensure the well-being of a beneficiary who is not residing in a facility.
In a revision not concerned with the sole benefit rule, but of real practical importance to trustees and beneficiaries of special needs trusts, SSA has clarified how it will treat distributions from a trust to debit cards for the beneficiary's benefit. SSA has indicated that distributions from a special needs trust to a debit card in the name of the beneficiary are treated like a distribution of cash – as unearned income. However, a distribution to a debit card owned by the trust and administered by the trustee who has the power to restrict how and where the beneficiary uses the card (such as a True Link card) is evaluated based on the items purchased with the card. Food and shelter items are treated as in-kind support and maintenance and reduce the beneficiary's benefits accordingly. Items which are not in-kind support and maintenance items are generally not considered income. Similar treatment is given to purchases made with the beneficiary's personal credit card which is paid with trust funds. POMS SI 011201.I.1. Distributions to the beneficiary's ABLE account are not treated as income.
While the POMS cannot cover every situation, every person acting as trustee or advising a trustee of a special needs trust is well advised to read the revisions. SSA has added examples to many sections that will assist the trustee in making decisions about the potential impact of distributions on the beneficiary's public benefits. In addition, there are instructions to the eligibility workers about what should and should not be evaluated in connection with certain aspects of the sole benefit rule. All are worth reading. Even though one can argue that certain examples leave wide areas of uncertainty, specifically how much collateral benefit is too much, what has been provided will allow a trustee to feel more confident that the possibility of a slight benefit to someone other than the beneficiary can be disregarded. In addition, many trustees and families will be relieved that family member caregivers no longer need to prove medical training in order to receive reasonable compensation from the trust for the services they provide. In recognition of the POMS changes, InterActive Legal recently revised the provisions of the (d)(4)(A) trust in the Elder Law and Special Needs Planning program to reflect the new interpretation of the sole benefit rule and remove certain clauses that are now too narrow in scope.