The Trusts and Special Needs Section of the National Academy of Elder Law Attorneys recently advised NAELA members of a change to the POMS (the Social Security Program Operations Manual). While the change to the manual appears now, the actual implementation date is not until later this year.
Effective October 1, 2010, First Party Trusts (D4As and D4Cs) must undergo another test to pass muster with Social Security. Very often the goal of an SNT is to ensure that the assets of the SNT are not considered countable resources by Social Security and thus passing muster is pivotal.
The Social Security manual directs the field officer to review all d4a and d4c trusts established after January 1, 2000. First Party Trusts (in other words, those established with the monies of an individual) drafted over ten years ago need a second look.
A d4c or a d4a trust with a clause that allows a trust to terminate before the individual (the beneficiary) dies are under scrutiny. The clause allowing for a trust to terminate is called an early termination clause, or an early termination provision. The typical clause states that the trust may terminate when the individual is no longer disabled. Another typical clause states that the trust may terminate when the trust fund runs so low on assets that it is not economical to continue the trust.
What to look for in your d4a and d4c trust:
If there is a provision in the trust that permits the trust to terminate before the beneficiary dies, look for these 3 points:
1. All remaining $ in the trust must first be applied to Medicaid debt.
2. After the State has been paid, all remaining $ must go to the beneficiary (OR directly to another d4c trust, per specific limiting language.)
3. The beneficiary CAN NOT have the power to terminate the trust him/herself.
First Party SNTS will be considered countable resources if the early termination clauses gives the beneficiary authority to terminate the trust.
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