The U.S. Census Bureau estimates that there are approximately 56.7 million people with disabilities living in the United States. This figure represented 18.7% of the national population in 2010. Among individuals with disabilities between the ages of twenty-one and sixty-four, only 41.1% are employed. Accordingly, people with disabilities rely on more than sixty federal and state programs for their special needs.
An individual’s “special needs” are specific to that person, as they are defined by the resulting challenges and life circumstances of his or her disabling condition. For an individual whose disability inhibits earning sufficient income, the Social Security Administration (“SSA”) provides for this special need through Supplemental Security Income (“SSI”) payments. For an individual whose disability precludes affording healthcare, the Center for Medicaid and Children’s Health Insurance Program (“CHIP”) Services meets this special need through funding healthcare services.
Due to many factors, including budget cutbacks and rationing of services, government benefits are not able to provide all of the supplemental goods and services necessary for the special needs of an individual with a disability. For this reason, the family of an individual with a disability often wants to contribute additional funds to compensate for the inadequacies of government benefits. The family members, however, will likely face challenges in this attempt to plan for the long-term needs of their loved one. For example, both of the aforementioned benefits programs require that an individual with a disability have an economic need for the benefit, thus the agencies evaluate income as one factor in determining whether an individual with a disability is eligible to receive SSI or Medicaid. If a family member has transferred his or her own assets to provide for the individual with a disability, these assets may be counted as the individual’s resources and disqualify him or her from receiving government benefits. Likewise, if an individual with a disability receives a sum of money through a settlement or inheritance, this sum may be counted as income and result in disqualification.
Over the past twenty years, estate planning attorneys have advanced the practice of special needs trusts (“SNT”), also referred to as supplemental needs trusts, to alleviate the problems in planning for the special needs of an individual with a disability. A family member (or other third party) or the individual with a disability may establish an SNT, naming the individual with a disability as the beneficiary, and transfer assets into the trust to be used for additional purchases that SSI and Medicaid do not cover. The funds in an SNT are not counted as the resources or income of the beneficiary, thus the SNT compensates an individual with a disability for the inadequacies of government benefits without jeopardizing his or her eligibility to continue receiving benefits. In other words, the individual with a disability can continue to rely on SSI for financial support and Medicaid for healthcare services while receiving additional funds for supplemental goods and services for his or her special needs.
Congress has explicitly recognized the utility of SNTs in providing for a beneficiary with a disability in 42 U.S.C. § 1382b(e)(5) and 42 U.S.C. § 1396p(d)(4)(A). Through these statutes, Congress exempted SNTs from the trusts that are generally counted as resources in SSI and Medicaid determinations. Following this mandate, the SSA instructed its decision-making personnel that SNTs are not countable resources for eligibility purposes. The SSA includes this direction in its Program Operations Manual System (“POMS”), which the SSA distributes to its 1,300 state and local offices as the guiding authority for the personnel making eligibility determinations. The POMS also lists the criteria for personnel to evaluate whether a trust qualifies as an SNT. The SSA criteria, however, include additional requirements beyond what Congress included in the federal statutes. Therefore, an effective SNT must comply not only with Congress’s statutes but also with the SSA’s additional requirements in the POMS.
Although the power of the SSA to administer the SSI program necessarily requires formulating policy and making rules, the practical effects of the SSA’s adding and changing the requirements for an SNT call into question whether the SSA is acting beyond the scope of its authority. This issue arises because the POMS provides interpretive rules within the SSA; therefore, the agency may supplement or amend the POMS at any time without opportunity for public notice and comment. These unforeseen changes often lead to harsh consequences for individuals receiving benefits who are beneficiaries of an SNT.
