What Will Happen in Case of SSI Overpayment Due to Trust?
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Question:
My friend has been collecting SSI for many years and had to claim her Social Security when she turned 62 about a year ago in 2022. During this process, her financial situation was reviewed and her Special Needs Trust (SNT) was discussed and trust documents were requested by the Social Security Administration folks. The trust has been in place since early 2020 but, although she reported its existence to the SSA folks back then, no one ever asked for any information (most likely because all heck broke loose due to COVID). The original trust document created by her mother and father did not include the SNT. (In fact, her father had disinherited her). After her father died, my friend’s mother had the trust modified to include my friend and the SNT. When her mother died, my friend inherited her 1/5th of the estate through the funded SNT. Unfortunately, the original trust document (which did not include my friend) was, unbelievably, thrown away by her sister. My friend had a copy of the second iteration of the trust that included her and her SNT. All the rules for SNT’s (including filing trust tax returns, issuing k-1’s and detailed monthly expenditure reports) have been followed.
Unfortunately, the SSA person my friend was dealing with said the SNT wasn’t really an SNT because she couldn’t produce the original trust document and declared that all the trust assets were really my friend’s assets and, therefore, she had had too many assets since 2020 to receive SSI. The original attorney had retired but she located him and he dug out an unsigned draft of the original trust (that did not mention my friend) and submitted it to the SSI folks with a letter from him. The SSI office has been a black hole for the last year. My friend has lost some benefits she was receiving but at least she has been getting her Social Security benefit. What can happen if SSA concurs with the one representative’s decision? Can the SSA folks seek to recover the amount of the SSI benefits she received during 2020-2022? If they can, will they take her Social Security benefit payments every month? Will they attempt to take the back SSI from the Special Needs Trust without the approval of the trustee because they say the trust doesn’t really exist or maybe they accept it as a trust but not an SNT? Such a mess!
Response:
It does sound like a mess.The Social Security Administration can be a black hole, as you describe it. But because if this, it may well be that nothing happens. While this no doubt makes your friend uncomfortable because it’s hanging over her head, I’d advise her to sit tight for now. She’s done her part and now it’s up to the SSA to act. If they do and demand repayment, your friend will have reconsideration or appeal rights. At that time, she should probably hire an attorney to look at the documents and present her appeal. If she cannot afford one, she may be able to be represented by legal services or a pro bono attorney.
Without looking at the documents, I can’t comment on who is right — whether the trust does protect your friend’s assets meaning that she should have been eligible for SSI or not. The answer depends on the terms of the trust and who is deemed to have created it. If your friend created it, it’s probably countable and would have made her ineligible for SSI. But if her mother created it, then it’s probably noncountable and should not have affected her SSI eligibility. An special needs planning attorney can advise your friend as to the probably answer.
If your friend ultimately uses her appeal she would have to repay the SSI benefits she received from 2020 to 2022. Usually for someone who is continuing to receive SSI, the SSA permits this to be repaid over many years through a small reduction in the monthly Social Security benefit. They can make no claim against the trust.
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The original trust and the modification were done by an experienced trust attorney at the request of the mother when she was still alive. The cost of the original trust and the modification to create the SNT was in the range of $13,000 (I saw the invoices in the trashed trust book) so if cost is an indicator of quality, it was done correctly! The SSI person had no issue with the language of the trust, just that it was not the original signed document.