Social Security Administration Revises Rules: Permits First-Party Trusts to Pay for Non-Beneficiary Travel in Some Cases

The Social Security Administration (SSA) has revised its Program Operations Manual System (POMS) to allow first-party trusts to pay for travel expenses incurred by non-beneficiaries in limited cases. In addition, the revised POMS clarifies the rule that payment of some administrative expenses upon early termination of the trust or otherwise, including trustee fees, will not violate the sole benefit rule.

A controversy surrounding trusts and travel expenses began last spring, when the SSA added two examples to POMS Section 1120.201. The new wording stated that trusts that permit a trustee to reimburse a beneficiary’s family for expenses incurred in visiting the beneficiary would violate the “sole benefit rule” and would therefore not qualify as exempt resources.

The SSA removed the offending examples after attorneys and other advocates objected, but the agency warned that it would revisit the issue. The latest revisions, announced in a Policy Transmittal and effective May 15, 2013, represent a compromise position.

According to the updated POMS Section 1120.201.F.2, the general rule is that a trust is established for the sole benefit of an individual “if the trust benefits no one but that individual, whether at the time the trust is established or at any time for the remainder of the individual’s life.” However, the revised POMS establishes two exceptions, one for third-party payments and one for administrative expenses.

The new rule states that payments do not violate the sole benefit rule if they are to third parties for goods or services received by the beneficiary, payments of third-party travel expenses “which are necessary in order for the trust beneficiary to obtain medical treatment,” or payments that allow a third party to “visit a trust beneficiary who resides in an institution, nursing home, or other long-term care facility (e.g., group homes and assisted living facilities) or other supported living arrangement in which a non-family member or entity is being paid to provide or oversee the individuals living arrangement.” However, [t]he travel must be for the purpose of ensuring the safety and/or medical well-being of the individual.”

The new POMS section also provides a 90-day safe harbor period for revision of a trust that was previously judged to be an exempt resource but has run afoul of the new travel provisions. The 90-day period does not start running until the beneficiary or his representative payee is informed that the trust violates the new rules.

Revised POMS Section 1120.201.F.2.c, which is incorporated into several additional sections, including 1120.199 (the early termination rules) and 1120.203, makes it clear that payments for “reasonable compensation for a trustee(s) to manage the trust, as well as reasonable costs associated with investment, legal or other services rendered on behalf of the individual with regard to the trust” do not violate the sole benefit rule.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.