An Invitation to a Beheading:
Two SSI Practice Tips for the Courageous

SSI Transfer Rules

As many readers already know, a lot of music died for SSI planners on December 14, 1999. That was the day that President Clinton signed the Foster Care Independence Act of 1999 (Public Law 106-169, 113 Stat. 1833). A tiny part of it created new rules that disqualify SSI applicants or beneficiaries if they make gift transfers of their assets. In theory, this tightening was supposed to result in savings for the SSI program to help pay for the other new expenditures authorized in the Act.

Be that as it may, the new SSI transfer rules can cause a lot of trouble for SSI applicants and recipients. They disqualify applicants who have made gifts of their assets -- usually for the purpose of bringing the value of their assets below the $2,000 SSI eligibility threshold. Worse, they disqualify current SSI recipients who receive a "windfall", e.g., an inheritance, and then attempt to give it away in order to preserve benefits. The disqualification rules are similar to, but not quite the same as, the Medi-Cal rules that disqualify people for Medi-Cal supported nursing home care if they have made gift transfers of their assets.

From enactment until September 23, 2000, practitioners had only the bare statute to guide them. However, on that date the Social Security Administration issued Transmittal No. 12 (SSA Pub. No. 68-0501150) interpreting and implementing the new SSI transfer rules. It did this by revising and republishing SSA's Programs Operation Manual System (POMS) instructions for treatment of transfers of assets by the SSI program. The new POMS provisions can now be found at SI 01150.000, et seq.

Plowing through the dense new POMS language can be tough going, but also rewarding. There are some remarkable surprises. For example, the statute says that when calculating the period of ineligibility caused by gift transfers, fractional months are to be rounded "to the nearest whole number" (42 USC §1382b(c)(1)(A)(iv)). Nevertheless, for some unknown reason, SSA decided that what Congress really meant was that fractions are to be rounded "down to the nearest whole number" (POMS, SI 01150.111, A.). But I digress. The purpose here is to point out two interesting potential planning opportunities that come from the new POMS rules:

In-Kind Support and Maintenance

SSA offers the following fascinating example in its discussion of "Determining Market Value" (POMS, SI 01150.005):

Example: Mr. Thomas transfers $30,000 cash to his sister based on a written contract that she would provide him with food and shelter for 5 years. The sister values the food and shelter as $500 per month. The Claims Representative develops Mr. Thomas's living arrangements and determines that he has a flat fee arrangement with his sister and is required to pay $500 per month. The food and shelter for 5 years is worth $30,000 (5 years x $6,000 per year). Therefore, Mr. Thomas received Fair Market Value for the $30,000 he transferred. In-Kind Support and Maintenance [a form of income countable in the SSI program] is not counted because Mr. Thomas has prepaid for his food and shelter with the $30,000 he transferred.

Now, let's see how the implications of this example might be used to help our clients. Suppose Mr. Thomas has been on SSI and has just received $30,000 in a (badly planned) inheritance from his mother. Under the new SSI transfer rules, he can no longer just give this money away to his sister to maintain his SSI (and usually critical Medi-Cal coverage as well). Any such gift would result in disqualification for many months.

However, the example seems to say that Mr. Thomas can shelter his inheritance (or any amount of any windfall) by entering an certain kind of "agreement" with a third party. In this case, the agreement provides that the entire inheritance will be transferred to the sister in return for her promise to provide food and shelter in return, assuming a fair value for the food and shelter, presumably just by spending the money she received from her brother for whatever number of months is needed to exhaust the funds. SSA regards this as Mr. Thomas buying his own food and shelter by prepayment. The magic is that Mr. Thomas's SSI benefits are not reduced because he has neither made a "transfer" nor received any countable "income". In other words, his inheritance has been sheltered, and he has the use of both his inheritance and full SSI benefits.

I can't help but ask the next question. Suppose Mr. Thomas makes a slightly different agreement with his sister. Instead of forking over the entire $30,000 for food or shelter, he bargains for his sister to provide for his "special needs" (anything that is not food, shelter, or clothing). If this is still an agreement and prepaid purchase for fair market value, there is still no disqualifying gift transfer. If the special needs benefits have all really been paid for, they are not countable as "income" (and wouldn't be counted anyway because they would not be in the form of food, shelter, or clothing provided by someone else).

If Mr. Thomas can do this, and keep his SSI benefits, he has done something by "agreement" not much different from creating an irrevocable trust for himself without the special, sometimes problematic, provisions otherwise required for a trust to shelter assets, e.g., be younger than 65, have a "payback" provision, and be established by a parent, grandparent, conservator, or court.

Undue Hardship

Generally practitioners have not found "undue hardship" to be a very fruitful argument for Medi-Cal eligibility purposes. However, SSA has adopted definitions of "undue hardship" that look like they could actually be met sometimes.

There is "an exception to the period of ineligibility if not getting SSI benefits would create undue hardship for the individual" (POMS, SI 01150.126). Undue hardship exists if:

• the individual alleges that failure to receive SSI payments would deprive the individual of food and shelter, and
• the individual's total available funds (income and liquid resources) do not equal or exceed the full Federal Benefit Rate (FBR) plus the applicable state supplement, if any, due for his/her living arrangement for the month that undue hardship is alleged.

So, if a person like Mr. Thomas above were to simply give away his $30,000 to his sister, could he still keep his SSI and Medi-Cal by claiming undue hardship? First, he has to allege that he would be deprived of food and shelter if he does not receive SSI. This seems like a no-brainer in most cases.

Second, Mr. Thomas can't have over a certain amount of funds, counting both income and resources. In 2001 the Federal Benefit Rate for a person living independently is $512, and the state supplement is $182, for a total of $712. In other words, instead of facing a $2,000 property limit, Mr. Thomas faces a $712 property limit (assuming no income). Frankly, it does not seem likely that spending down to $712 should be all that challenging in most cases. If SSI recipients can spend down to $712 (or whatever the level is appropriate for their living arrangement), all they have to do then is allege deprivation of food and shelter to avoid the disqualification from having made a gift transfer.

Conclusion

Well, this is all very interesting but I haven't tried any of it. Instead, I invite you readers to try these ideas on your clients, and see if you get your head handed to you by SSA (hence the title of this article). And, of course, you will not even begin to think about attempting them for a live client until you have carefully read all of SSA Transmittal No. 12 (be sure to have some caffeinated beverage at hand). Let us know what happens.

Gregory Wilcox, Esq., is an attorney in private practice in Oakland, CA.