8th Circuit Rejects “Attempt” to Create d4A Special Needs Trust to Permit SSI Eligibility

In Draper v. Colvin, petitioner sought judicial review of SSA’s denial of her application for SSI benefits. Her claim was sympathetic, as “[e]ighteen-year-old Stephany Draper suffered a traumatic brain injury in a car accident in June 2006.”

In an admittedly  “hard line” ruling on March 3, the 8th Circuit rejected her argument that her parents’ intent to establish a valid third-party-settled special needs trust, using proceeds from a settlement of a personal injury suit on her behalf, should permit her to claim SSI. 

The ruling means that over $400,000 will be treated as “available resources,” thus requiring spend down before she would be eligible for benefits.  The court explained (minus citations):

Admittedly, some evidence in the record supports Draper’s claim that her parents intended to act in their individual capacities. Draper’s parents identified themselves individually as settlors and trustees, and the trust document explicitly states that it was established “pursuant to 42 U.S.C. § 1396p(d)(4)(A),” a provision which notes that a third party, such as a parent, must create the special needs trust for the benefit of the disabled person. Nevertheless, as discussed [earlier in the opinion], other facts provide substantial evidence to support the conclusion that Draper’s parents acted using the power of attorney when establishing the trust.

The Court continued on to its tough bottom line:

Importantly, the POMS provides the specific steps Draper’s parents had to follow if they wished to create a qualifying trust under § 1396p(d)(4)(A).First, Draper’s parents, acting as individuals, needed to establish an “empty” trust or a seed trust with their own assets as the trust’s initial res…. Only after the “empty” trust was formed or the seed trust was funded could Draper or her parents, using power of attorney, transfer Draper’s money into the already-established trust…. Substantial evidence in the record supports the SSA’s finding that Draper’s parents did not take these initial actions, nor did they dissolve and recreate the trust to comply with the POMS at any point during this lengthy litigation. Accordingly, we cannot find in her favor. In reaching this conclusion, we recognize that we draw a hard line. However, we are not persuaded that we must find in favor of Draper because her parents came “close enough” to meeting the requirements laid out in the POMS.

The National Academy of Elder Law Attorneys (NAELA) submitted an amicus brief in support of the family’s argument.  Elder Law specialists are frequently called in at the time of settlement of a personal injury suit, where there is a need to protect public benefits and maximize the private dollars available through settlement to meet the needs of the injured party.