The Social Security Administration (SSA) has created great uncertainty for attorneys who only draft supplemental needs trusts (SNTs), but do not represent clients before the agency. A new transmittal could be interpreted to mean that such attorneys must have their fees approved in advance or be subject to criminal penalties. The memorandum has been withdrawn but the agency is still considering the issue.

What Is a SNT?

A supplemental needs trust is a discretionary trust established for the benefit of persons with severe and chronic or persistent disability. The creator's intent is to supplement and not supplant government benefits. The trustee is prohibited from using trust assets for items that would otherwise be covered under government entitlements. Some of these trusts are established by the disabled person and some are established by third parties for the benefit of a disabled person.

Supplemental Security Income (SSI), the federal program that provides cash to meet the basic needs of food, clothing and shelter, is an example of a needs-based program that is administered by the SSA. The applicant must show extremely low assets to qualify.

Many estate planning attorneys include the exact language of EPTL §7-1.12, the New York state statute that authorizes such planning, in the wills and trusts they draft. They frequently include such a provision for their clients who have family members with disabilities, so that the disabled family member's future inheritance will not interfere with their SSI benefits.

Many personal injury lawyers draft special needs trusts so that their clients may continue to receive SSI benefits if the suit is successful.

In the past, most attorneys felt confident that SSA fee authorization was only required for actual representation of a client before the SSA, such as filing an application or attending a hearing or pursuing an appeal. They did not seek SSA fee approval for drafting wills or trusts that contained supplemental needs trust language if they did not formally represent the SSI applicant or recipient before the agency. This was especially true where the client was a third party and not the applicant or recipient. For example, a grandparent might retain an attorney to draft a trust so that funds left to a disabled grandchild did not result in disqualification for benefits.

POMS

All of this changed on June 25, 2019 when the SSA published Program Operations Manual System (POMS) GN 03920.007. POMS are the primary source that SSA workers rely upon to process claims. They are not statutory, and they are not regulations, and as such there is no requirement of advance notice and comment in the Federal Register. The June 25, 2019 POMS relating to legal fees was issued with no advance warning to the public or practitioners.

At first blush, the POMS appeared to be holding that fee approval was not required for mere drafting of supplemental needs trusts. "Types of services that may not require us to authorize fees include but are not limited to: … Establishing a trust account."

However, the POMS went on to include several ambiguous examples that were broad enough to raise the question of whether simply drafting a supplemental needs trust, without appearing before the agency, required prior approval.

Example 1.

Mary Smith, a woman whom we have found disabled under title II and allowed monthly disability benefits, hires an attorney, Ms. Roberts, to establish a trust with $10,000 in assets. We do not need to authorize Ms. Roberts' fee for the services provided to establish the trust.

Explanation: An attorney may establish a trust for an individual who is already receiving benefits without the need of our authorization of the fee he or she seeks, so long as the trust was not established to protect continuation of SSI eligibility. (emphasis added)

The emphasized language strongly suggests that drafting a supplemental needs trust that the attorney reasonably anticipates will be used to allow an individual to continue their SSI eligibility, will require prior approval of legal fees. The example is especially confusing because the title II reference is to Social Security Disability Insurance, which is not needs-based.

Example 3.

Clara Waters, a grandmother, established a trust for Rainbow, her granddaughter, through Mr. Johnson, an attorney. Generally, we do not need to authorize Mr. Johnson's fee, so long as the trust was not established for the purpose of affecting his client's eligibility for benefits. (emphasis added)

The emphasized language is open to the interpretation that drafting a supplemental needs trust for a client who will not apply for government benefits but is for the benefit of a family member that the attorney reasonably anticipates might seek SSI eligibility in the future, will require prior approval of legal fees.

The penalty for collecting a fee without authorization is a misdemeanor offence punishable by a fine not to exceed $500 or imprisonment not to exceed one year or both.

POMS GN 03920.007 Archived

On Sept. 25, 2019 the SSA issued a transmittal stating "GN 03920.007 Legal and Specialized Services Not Subject to Fee Authorization has been archived pending clarification." "Archived" is an SSA term meaning that the rule has reverted to the prior status, but the agency may issue new POMS on this topic.

Attorneys drafting special needs trusts should not relax their guard simply because the transmittal has been withdrawn. The statement that withdrawal was made "pending clarification" raises the specter that a new transmittal may be issued on this topic.

Conclusion

The Social Security Administration has the authority to regulate the legal fees "in connection with any claim before the Commissioner of Social Security …" 42 U.S.C. §406(a)(1). This authority is for the protection of applicants and recipients against excessive fees. The crux of the issue is exactly what constitutes a legal service in connection with a claim before the agency.

Attorneys may now check their own files and search for every will or trust in which they included supplemental needs trust language. As a practical matter, attorneys are now left with a difficult dilemma. They may choose to submit fee requests for drafting supplemental needs trusts and not charge or collect a fee until they receive permission from the agency. Others may choose to rely upon the "archiving" of the recent POMS as authorization to forgo submission of fee requests.

It would be helpful if the SSA would issue a transmittal that clearly and unequivocally answers the question of what constitutes legal services in connection with a claim before the agency.

Daniel G. Fish is a partner at McLaughlin & Stern.