New Social Security policy creates confusion over Special Needs Trusts

The Social Security Administration has published a new policy requirement concerning Special Needs Trusts in the form of a  provision in its POMS [Procedure and Operations Manual]. The new POMS states that attorney fees charged for preparation of certain trusts for individuals who are now receiving, or may in the future receive SSI, must be approved by the Social Security Administration (SSA). 

POMS Link: https://secure.ssa.gov/apps10/poms.nsf/lnx/0203920007

This new policy has created some confusion, because there are numerous situations in which an attorney drafts the Trust but is not representing the client in their application for SSI benefits at Social Security, and isn’t representing the client on any appeal of a denial or termination of SSI benefits.

When a person is disabled and needs benefits through Medicaid, SSI or other programs, there is a limit on the resources (assets) that they can have. If this person is under age 65, s/he may want to transfer the excess assets into a Special Needs Trust, because this is a way to preserve and safeguard the excess monies so they can be used for future special needs.

Sometimes the disabled individual hires a lawyer for estate planning and along with things like a Power of Attorney, Will and Health Care Directive, they sign a first-party Special Needs Trust. The lawyer prepares the estate plan and guides the client on how the plan is to be implemented. Other times, the disabled individual might be inheriting money from an estate — such as, their parent died and left them an inheritance — or might be settling a personal injury case or a workers compensation case. In all of these examples, the attorney may be preparing the Trust, but is not representing the individual on any of their claims or appeals before the Social Security Administration.

There are other situations as well when an SNT is prepared.

  1. SSI recipient has an SNT that is not valid and must be modified. SSI recipient [or his POA, or his Guardian] retains lawyer who does the legal work to amend or redo the trust, with or without court proceedings depending on the circumstances, along with basic instructions, and who then provides the signed documents to the claimant to personally deliver to the SSA.
  2. Estate planning for a family with a young child who has disabilities who may or may not apply for SSI benefits when he or she is 18.
  3. Estate planning for a disabled adult person who intends to apply for SSI; preparation of a Will, POA, LW, SNT, and opinion letter with guidance on how to fund the trust and what to do when client decides to go apply for SSI.
  4. Disabled person is incapacitated and Guardian is appointed, and Guardian gets court’s permission to establish and fund an SNT so that the Guardian can file a claim for SSI benefits [or update existing file, in case funds have been received]. Guardian hires a lawyer who does this work, but lawyer does not handle the case at the SSA.

The elder law bar is working   on this issue, as is the National Academy of Elder Law Attorneys , to obtain clarification from the Social Security Administration and determine how to structure these work relationships. In the meantime, practitioners need to be aware of the situation, as their clients may receive letters asking for production of  fee agreements and fee-approval applications. Along with concern about what the process will be for fee approval, how long it will take and the impact it might have on receipt of pending assets, another worry is that the POMS includes criminal penalties for attorneys who do not comply with the directive.

If you are concerned about this topic, contact Lauren S. Marinaro, Esq., immediate past President of the NJ chapter of NAELA.

Call us for legal advice concerning Trusts, Estates and Medicaid eligibility .. 732-382-6070

The NEW New Jersey Uniform Trust Code arrives July 17th

New Jersey has adopted a new Uniform Trust Code which you’ll find at N.J.S.A. 3B:31-1 et seq. (Public law 2015, chapter 276). It was signed into law on January 19, 2016 and will take effect on July 17, 2016. The law has wide-reaching implications. It applies to existing trusts as well as trusts that come into existence after the effective date. If you are the trustee of a trust, or a beneficiary of a trust, or are in the process of creating a trust, it’s a good idea to review the trust with an attorney to see what may be affected by the new law.

Here are a few features of the new Code.

The law establishes time limits in which a beneficiary can contest the way the trust is administered. See N.J.S.A. 3B:31-74. Some trustees send out an annual report or accounting to the beneficiaries, and others do not. Some trusts require this, others do not. A beneficiary is generally entitled to demand a view of the records of the trust to see if his/her interests are being protected: The new statute mandates that a trustee “keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” See N.J.S.A. 3B:31-67.a.  These are the current permissible or mandatory distributees, successor permissible distributees, or presumptive remainder beneficiaries.

It is still up to the Trustee whether and when to send out an accounting of the trusts’s activity. However, the benefit to the trustee of sending out a report or accounting is that under the new law, once the trustee sends out a report that (a) adequately discloses the existence of a claim for breach of trust and (b) informs the beneficiary of the time allowed for commencing a legal proceeding, the beneficiary has just six (6) months in which to file suit. If the trustee sends no report, the beneficiary has up to five (5) years to sue after the earlier of  (a) removal, resignation or death of the trustee, (b) termination of the beneficiary’s interest, or (c) termination of the trust. If the beneficiary is a minor, this time limit starts to run upon reaching the age of majority. See N.J.S.A. 3B:31-74. 

The law allows one co-trustee to delegate powers to a co-trustee  even if the trust language didn’t expressly allow it, provided that it doesn’t appear that the settlor reasonably expected the trustees to act jointly on all functions. This could provide for greater flexibility in the trust administration, particularly in case of an emergency. See N.J.S.A. 3B:31-60. 

One other area that could be of great use is that a trust can be amended by the trustee with the consent of all interested persons, without the need to go to court to get judicial approval. See N.J.S.A. 3B:31-27. Even an irrevocable trust could be amended. The modifications must be consistent with the material purpose of the trust. This may mean that if you are dealing with an old trust such as a First Party Special Needs Trust that doesn’t meet all the current regulatory requirements, the trustee and beneficiary could agree to the modification without judicial intervention. If the beneficiary receives benefits from Medicaid, the State’s consent may be required as well … but that’s a discussion for another day.

Call us to review and discuss trusts, estate planning and special needs … 732-382-6070