A federal court rules that the Social Security Administration (SSA) did not err when it determined that a Supplemental Security Income (SSI) beneficiary’s special needs trust was a countable resource due to an inexact Medicaid payback provision and an early termination clause, but the court remands the case so the beneficiary can amend the trust to conform to the SSA’s requirements.  Orr v. Colvin (E.D.Cal., No. 2:14-cv-1251-EFB, March 30, 2016).

Marvin Orr received SSI, and at some point became the beneficiary of a special needs trust.  On June 18, 2013, the SSA issued a Notice of Overpayment claiming that Mr. Orr had not been entitled to benefits since December 2012 because his trust did not have a valid Medicaid payback provision and allowed for early termination.  After Mr. Orr appealed, an administrative law judge (ALJ) overturned the SSA’s decision, but the appeals council reversed the ALJ and reinstated the overpayment period.  When the appeals council refused Mr. Orr’s request for a 90-day stay in order for him to amend the trust to comply with the law, Mr. Orr filed suit in federal court.

The SSA took issue with two provisions of Mr. Orr’s trust.  First, it claimed that since the trust required full reimbursement for Medicaid expenses but also granted the trustee discretion to pay for Mr. Orr’s funeral expenses and other debts without mandating that the state be repaid first, the payback provision was invalid.  Mr. Orr argued that because the Medicaid payback language required the trustee to reimburse the state while the trustee had discretion to make other payments, it would interfere with the trust’s purpose to infer that the state was not entitled to reimbursement first.  The SSA also objected to an early termination clause that would allow for distribution to other beneficiaries via a special power of appointment should the trust render Mr. Orr ineligible for SSI.  Mr. Orr argued that this provision was null and void because it failed to comply with California probate law.  

The U.S. District Court for the Eastern District of California grants Mr. Orr’s motion for summary judgment but it agrees with the SSA’s analysis of the trust’s problems.  The court finds that “[w]hile the trust does direct the trustee upon termination of the trust to reimburse the state for medical assistance paid on plaintiff’s behalf, it simply fails to state that those payments must be made prior to any other distribution.”  The court also holdsthat “[e]ven if the trust’s early termination provision renders it void and unenforceable under California Probate Code section 3604, that does not cure the trust’s defect and somehow cause it to qualify under the exception to the resource limitations under the Social Security Act.”  However, the court remands the case because the appeals council entered a final decision without giving Mr. Orr time to cure the defects as required by POMS SI 01120.199(A)(2).

To read the full text of the court’s decision, go to:  https://scholar.google.com/scholar_case?q=Orr+v+Colvin&hl=en&as_sdt=40000006&case=3511902774651058219&scilh=0