Court Opinion

ID: 2783499
Source: CourtListenerOpinion
Date Created: 2015-03-03 16:01:35.965362+00
Date Added: 2024-06-11T11:02:46.984008
License: Public Domain

United States Court of Appeals
                          For the Eighth Circuit
                      ___________________________

                              No. 13-2757
                      ___________________________

                                 Stephany Draper

                      lllllllllllllllllllll Plaintiff - Appellant

                                          v.

 Carolyn W. Colvin, Acting Commissioner of the Social Security Administration

                     lllllllllllllllllllll Defendant - Appellee

                            ------------------------------

      National Academy of Elder Law Attorneys; Special Needs Alliance

                 lllllllllllllllllllllAmici on Behalf of Appellant
                                      ____________

                   Appeal from United States District Court
                 for the District of South Dakota - Sioux Falls
                                 ____________

                           Submitted: October 9, 2014
                              Filed: March 3, 2015
                                 ____________

Before MURPHY, SMITH, and GRUENDER, Circuit Judges.
                           ____________

GRUENDER, Circuit Judge.
       Stephany Draper appeals from the district court’s1 decision affirming the
termination of her Supplemental Security Income (“SSI”) payments. The district
court held that Draper was not eligible for SSI benefits because the funds in her trust
raised her assets above the eligibility limit. We affirm.

                                          I.

       Eighteen-year-old Stephany Draper suffered a traumatic brain injury in a car
accident in June 2006. Draper executed a durable power of attorney, authorizing her
parents, John and Krystal Draper, to, among other things: (1) “demand, sue for,
recover, collect, and receive” every sum of money belonging to or claimed by Draper;
(2) “compromise or compound any claim or demand;” and (3) “fund, transfer assets
to, and to instruct and advise the trustee of any trust wherein [Draper is] or may be
the trustor, or beneficiary.”

      Draper began receiving SSI payments in July 2007. Approximately seven
months later, on February 12, 2008, John Draper signed a personal-injury settlement
statement on Draper’s behalf, under which Draper received $429,259.41. Later that
day, Draper’s parents, without referencing the power of attorney, signed documents
creating the Stephany Ann Draper Special Needs Trust. As explained in the trust
document, Draper’s parents intended for the trust to qualify under 42 U.S.C.
§ 1396p(d)(4)(A), meaning that it would provide for Draper’s needs without
“displac[ing] or supplant[ing] public assistance or other sources of support that may
otherwise be available to the beneficiary.” The trust listed as its funding source only
“the proceeds of the settlement of a liability claim,” referring to the money Draper
received in the personal-injury settlement. The trust was funded with the

      1
       The Honorable Karen E. Schreier, then Chief Judge, United States District for
the District of South Dakota.

                                         -2-
$429,259.41 sum in a single deposit on the same day that her parents executed the
trust agreement.

      In September 2008, Draper received notice from the Social Security
Administration (“SSA”) that she had been overpaid a total of about $3,000 in SSI
benefits from February through September 2008 because her assets, including the
funds in the trust, exceeded the SSI-eligibility limit of $2,000. The SSA also
informed Draper that her SSI payments would cease. Draper appealed the agency
decision to an Administrative Law Judge (“ALJ”).

      The ALJ found that Draper had been overpaid SSI benefits because her special-
needs trust was not exempt from being counted as a personal asset under
§ 1396p(d)(4)(A). To reach this conclusion, the ALJ relied on the SSA’s
interpretation of § 1396p(d)(4)(A) set forth in its Program Operations Manual System
(“POMS”), a policy and procedure manual that agency employees use in evaluating
eligibility for SSI benefits. According to the POMS, Draper’s parents had to act as
third-party creators when establishing the trust in order for it to be exempt under
§ 1396p(d)(4)(A). POMS SI 01120.203B(1)(g). The ALJ found that the trust did not
qualify because Draper’s parents acted as Draper’s agents under the power of attorney
when they established the trust. Accordingly, the ALJ held that Draper was ineligible
for SSI benefits.

      Draper requested review by the Social Security Appeals Council. While her
appeal was pending and in an effort to remedy the trust’s non-compliance, Draper’s
parents obtained a state court order modifying the trust nunc pro tunc, effective
February 12, 2008, which retroactively listed the state court, rather than Draper’s
parents, as the trust’s settlor. The Appeals Council denied Draper’s request for
review and determined that the state court’s order modifying the trust did not provide
a basis for altering the ALJ’s decision. The district court affirmed the judgment of

                                         -3-
the SSA, likewise holding that the trust failed to meet the requirements laid out in the
POMS. Draper now appeals.

                                          II.

       We review de novo the district court’s decision affirming the denial of SSI
benefits. Byes v. Astrue, 687 F.3d 913, 915 (8th Cir. 2012). We will reverse the
findings of an agency only if they are not supported by substantial evidence or result
from an error of law. 42 U.S.C. § 405(g); Mason v. Barnhart, 406 F.3d 962, 964 (8th
Cir. 2005). “Substantial evidence is ‘less than a preponderance,’ but ‘enough that a
reasonable mind would find it adequate to support the Commissioner’s conclusions.’”
Travis v. Astrue, 477 F.3d 1037, 1040 (8th Cir. 2007) (quoting Dunahoo v. Apfel, 241
F.3d 1033, 1037 (8th Cir. 2001)). “If substantial evidence supports the
Commissioner’s conclusions, this court does not reverse even if it would reach a
different conclusion, or merely because substantial evidence also supports the
contrary outcome.” Id. “Whether the ALJ based his decision on a legal error is a
question we review de novo.” Juszczyk v. Astrue, 542 F.3d 626, 633 (8th Cir. 2008).

       Draper contends the SSA erred by concluding that her trust did not qualify
under § 1396p(d)(4)(A) because her parents satisfied the qualifying-trust criteria or,
alternatively, because the state court’s retroactive action naming itself as settlor
remedied any initial non-compliance. Our review requires us to examine whether
Draper’s parents or the state court properly established a qualifying trust. To
complete this task, we begin our analysis with the text of the statute. We then
examine whether the SSA’s interpretation of any ambiguities in the statute’s text
warrants deference. Finally, we explore whether Draper’s parents took the steps
necessary to comply with the qualifying-trust requirements when creating the
Stephany Ann Draper Special Needs Trust.

                                          -4-
                                            A.

       Under Title XVI of the Social Security Act, “[e]very aged, blind, or disabled
individual who is determined . . . to be eligible on the basis of his income and
resources shall . . . be paid benefits by the Commissioner of Social Security.” 42
U.S.C. § 1381a. When such an unmarried individual’s personal resources exceed
$2,000, he or she loses eligibility for SSI benefits. 42 U.S.C. § 1382(a)(3)(B).
Certain assets are exempt from being counted against this $2,000 limit, however,
including special-needs trusts under § 1396p(d)(4)(A). 42 U.S.C. § 1382b(e)(5). The
question at issue in this case is whether the Stephany Ann Draper Special Needs Trust
qualifies under this statute.

       As in any review of agency interpretations of federal law, we begin our analysis
with the text of the statute, 42 U.S.C. § 1396p(d)(4)(A), incorporated by 42 U.S.C.
§ 1382b(e)(5). See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S.
837, 842-44 (1984). We examine whether the statute’s language speaks to the two
issues raised by the parties in this case: (1) whether parents acting under power of
attorney may create and fund a qualifying trust and (2) whether a court’s nunc pro
tunc order modifying a trust such that the court is listed as its original settlor operates
to “establish” retroactively a qualifying trust. Section 1396p(d)(4)(A) defines a
qualifying trust as:

       A trust containing the assets of an individual under age 65 who is
       disabled (as defined in section 1382c(a)(3) of this title) and which is
       established for the benefit of such individual by a parent, grandparent,
       legal guardian of the individual, or a court if the State will receive all
       amounts remaining in the trust upon the death of such individual up to
       an amount equal to the total medical assistance paid on behalf of the
       individual under a State plan under this subchapter.

                                           -5-
       We agree with the district court that Congress, in the text of § 1396p(d)(4)(A)
and § 1382b(e)(5), did not speak directly to the questions at issue here. Specifically,
the text does not answer whether parents exercising power of attorney for their child
may create and fund a qualifying trust nor does it explain what process a court or a
parent must follow to “establish” such a trust. Neither § 1396p(d)(4)(A) nor
§ 1382b(e)(5) provides a definition of “parent” or “establish,” and we find no other
indication that Congress contemplated these issues when incorporating
§ 1396p(d)(4)(A)’s language into § 1382b(e)(5).2 See Chevron, 467 U.S. at 851
(discussing textual ambiguity). We therefore conclude that the text is ambiguous on
these points and that Congress left a gap for the agency to fill in overseeing the daily
administration of the special-needs trust exception. See Schweiker v. Gray Panthers,
453 U.S. 34, 43 (1981) (noting Congress has granted the agency administering the
Social Security Act “exceptionally broad authority to prescribe standards”);
TeamBank, N.A. v. McClure, 279 F.3d 614, 618-20 (8th Cir. 2002) (stating that an
agency may fill statutory gaps through interpretation). Accordingly, we find that the
agency had authority to interpret the statute, and we next examine whether the SSA
permissibly construed § 1396p(d)(4)(A) in the POMS. See United States v. Mead
Corp., 533 U.S. 218, 229 (2001).

                                          B.

      The district court determined that the POMS provisions at issue warrant
deference under Skidmore v. Swift & Co., 323 U.S. 134 (1944). Skidmore deference
recognizes that an agency’s interpretation of the statute it is charged with
implementing “may merit some deference whatever its form, given the ‘specialized
experience and broader investigations and information’ available to the agency, and

      2
        If anything, § 1396p(d)(2)(A) provides a definition of “establish” contrary to
Draper’s position. However, we acknowledge that it is unclear whether
§ 1396p(d)(2)(A) applies to § 1396p(d)(4)(A) and whether Congress incorporated
definitions from § 1396p(d)(2)(A) into § 1382b(e)(5).

                                          -6-
given the value of uniformity in its administrative and judicial understandings of what
a national law requires.” Mead, 533 U.S. at 234 (quoting Skidmore, 323 U.S. at 139).
Such deference operates along a spectrum. Id. at 228. The amount of deference
afforded to an agency interpretation under Skidmore turns on several factors,
including: (1) the thoroughness of the agency’s consideration, (2) the validity of its
reasoning, (3) consistency with earlier and later pronouncements, (4) formality,
(5) expertise of the agency, and (6) all those other factors “which give it power to
persuade, if lacking power to control.” Id. at 228-29 (quoting Skidmore, 323 U.S. at
140).

       We conclude that the district court properly held that the provisions in the
POMS interpreting § 1396p(d)(4)(A) warrant Skidmore deference. According respect
under Skidmore here is consistent with the Supreme Court’s conclusions that “[t]he
Social Security Act is among the most intricate ever drafted by Congress,” Schweiker,
453 U.S. at 43, and that Congress routinely relies on agencies to fill gaps in the
statutes they administer. See 42 U.S.C. § 405(a) (giving the Commissioner “full
power and authority to make rules and regulations and to establish procedures” to
administer the Social Security Act); Chevron, 467 U.S. at 843 (noting that Congress
explicitly and implicitly delegates authority to agencies to fill statutory gaps); see also
Wash. State Dep’t of Soc. & Health Servs. v. Guardianship Estate of Keffeler, 537
U.S. 371, 385-86 (2003) (granting the POMS provisions examined in that case
respect under Skidmore); Gragert v. Lake, 541 F. App’x 853, 856 n.1 (10th Cir. 2013)
(stating that the POMS warrants respect under Skidmore); Carillo-Yeras v. Astrue,
671 F.3d 731, 735 (9th Cir. 2011) (stating that the POMS may be entitled to respect
under Skidmore “to the extent it provides a persuasive interpretation of an ambiguous
regulation”); accord Davis v. Sec’y of Health & Human Servs., 867 F.2d 336, 340
(6th Cir. 1989) (“Although the POMS is a policy and procedure manual that
employees of the [administering agency] use in evaluating Social Security claims and
does not have the force and effect of law, it is nevertheless persuasive.”).

                                           -7-
        We further agree with the district court’s conclusion that the POMS provisions
at issue here—namely, those in POMS SI 01120.203B—warrant relatively strong
Skidmore deference. The relevant POMS provisions fall squarely within the SSA’s
area of expertise. See Hagans v. Comm’r of Soc. Sec., 694 F.3d 287, 303 (3d Cir.
2012) (explaining that the SSA “has a great deal of expertise in administering” the
Social Security program). In addition, the POMS provisions demonstrate valid
reasoning; that is, the detailed process required for establishing qualifying special-
needs trusts contained in the POMS is consistent with “Congress’s command that all
but a narrow class of an individual’s assets count as a resource when determining the
financial need of a potential SSI beneficiary.” Draper v. Colvin, No. CIV.
12-4091-KES, 2013 WL 3477272, at *9 (D.S.D. July 10, 2013) (citing 42 U.S.C. §
1382b). Finally, the provisions interpreting § 1396p(d)(4)(A) are part of a relatively
long-standing and consistent interpretation that ensures universal applicability of the
statute. Id.; see Sai Kwan Wong v. Doar, 571 F.3d 247, 261 (2d Cir. 2009) (noting
that “the deference due to an agency interpretation is at the high end of the spectrum
of deference when the interpretation in question is not merely ad hoc but is applicable
to all cases” (quoting Estate of Landers v. Leavitt, 545 F.3d 98, 110 (2d Cir. 2008));
cf. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212 (1988) (declining to grant
deference to an interpretation that emerged during litigation rather than through
earlier agency action). Draper has not pointed to any contrary interpretation of
§ 1396p(d)(4)(A) advanced by the SSA since the special-needs trust exception was
incorporated into § 1382b. For these reasons, we conclude the district court correctly
held that Draper had to comply with the requirements listed in the POMS to establish
a qualifying trust.

                                           C.

       We next examine whether Draper’s trust complied with the POMS provisions
interpreting § 1396p(d)(4)(A). POMS SI 01120.203 provides a detailed process for
creating a qualifying trust under this statute: “[T]o qualify for the special needs trust

                                          -8-
exception, the assets of the disabled individual must be put into a trust established
through the actions of the disabled individual’s: parent(s); grandparent(s); legal
guardian(s); or a court.” POMS SI 01120.203B(1)(f). When a parent seeks to
establish a trust for a legally competent adult, the POMS states that the parent “may
establish a ‘seed’ trust using a nominal amount of his or her own money, or if State
law allows, an empty or dry trust.” Id. After a seed trust or an “empty” or “dry” trust
is established, “the legally competent disabled adult may transfer his or her own
assets to the trust or another individual with legal authority (e.g., power of attorney)
may transfer the individual’s assets into the trust.” Id. Importantly, “[t]he special
needs trust exception does not apply to a trust established through the actions of the
disabled individual himself or herself.” Id. Regarding the funding of the trust, the
POMS provides the following:

       The person establishing the trust with the assets of the individual or
       transferring the assets of the individual to the trust must have legal
       authority to act with respect to the assets of that individual. Attempting
       to establish a trust with the assets of another individual without proper
       legal authority to act with respect to the assets of the individual will
       generally result in an invalid trust.

       ...

       [A] trust established under a [power of attorney] will result in a trust we
       consider to be established through the actions of the disabled individual
       himself or herself because the [power of attorney] merely establishes an
       agency relationship.

POMS SI 01120.203B(1)(g).

       Draper contends that her trust, at its inception, satisfied each of the POMS
criteria. Specifically, she alleges that her parents, acting in their individual capacities,
created a valid, qualifying, special-needs trust for her benefit. Only after the trust was

                                            -9-
established, she argues, was it funded with proceeds from the personal-injury
settlement. Draper contends that this sequence of events conformed with both South
Dakota law, see S.D. Codified Laws § 55-1-4 (noting that, under South Dakota law,
an express trust is created when the “trustor indicat[es] with reasonable certainty . . .
[t]he subject, purpose, and beneficiary”), and with the requirements set forth in the
POMS.

       Draper presents two theories supporting her conclusion. First, she argues that
evidence in the record shows that her parents, acting in their individual capacities,
formed a trust without a res—a so-called “empty” or “dry” trust3—and that this
“empty” trust only later was funded with her personal-injury settlement proceeds.
Thus, she argues that her parents complied with POMS SI 01120.203B(1)(f) because
POMS SI 01120.203B(1)(f) permits this sequence of events in states recognizing
“empty” trusts. Assuming without deciding that South Dakota law permits “empty”
trusts, we nevertheless find that Draper’s argument fails. The evidence shows that
Draper’s trust was not designed as an “empty” trust. Instead, the trust had an initial
res—the proceeds of the personal-injury settlement. The trust agreement executed
on February 12, 2008 made this fact explicit, stating that “[t]his trust is funded with
the proceeds of the settlement of a liability claim” (emphasis added), a $429,259.41
sum, which was transferred into the trust in a single deposit that same day. Thus, we
see no evidence of an intent to create an “empty” trust to comply with the POMS, and
we find no error in the district court’s conclusion on this basis.

      3
       We note that the terms “dry” and “empty” trust, as used in trust law,
sometimes refer to something other than a trust formed without assets. See, e.g., 1 H.
Tiffany, Real Property § 247 (3d ed. 1939) (defining dry trusts); Norman Veasey,
Kutak Symposium: Professional Responsibility and the Corporate Lawyer, 13 Geo.
J. Legal Ethics 331, 344 (2000) (mentioning empty trusts). However, the parties here
agree that the POMS intended to refer to a trust created without an existing res.

                                          -10-
       This finding brings us to Draper’s second theory—even if the trust was not
designed to be “empty,” her parents still complied with the POMS because they acted
only in their individual capacities when establishing her trust. We disagree. First,
under traditional trust-law principles, establishing a non-empty trust requires more
than the execution of trust documents; the funding of the trust with its initial res plays
a key role. See Restatement (Third) of Trusts § 2 cmt. i (2003) (noting that “merely
entering into . . . an agreement or instrument of trust does not initially create a trust
because of the absence of trust property, [but] a trust may . . . be created later if and
when a transfer of trust property to the trustee is made with reference to that
agreement or instrument”). Second, when a trust is formed with an initial, existing
res, like the trust at issue here, both the POMS and traditional trust law hold that
someone with a legal interest in the entire res must be involved in the trust’s creation;
otherwise, the trust is invalid. POMS SI 01120.203B(1)(g) (“Attempting to establish
a trust with the assets of another individual without proper legal authority . . . will
generally result in an invalid trust.”); Restatement (Third) of Trusts § 41 cmt. b
(2003) (“[O]ne cannot create a trust of property of which another has sole and
complete ownership.”).

       Draper’s parents, in their individual capacities, had no interest in the entire sum
constituting the trust’s initial res, Draper’s personal-injury settlement proceeds.4
Instead, they held an interest in the full settlement sum only in their capacity as
Draper’s agents exercising the power of attorney. Because Draper wishes to avoid
a finding that her parents created an invalid trust, we find substantial evidence in the
record that Draper’s parents necessarily were acting as her agents when they
incorporated all of her settlement proceeds and thus when they established the
Stephany Ann Draper Special Needs Trust. When Draper’s parents exercised the

      4
        In a motion filed in the district court, Draper’s parents conceded that they did
not contribute any of their own funds to the trust’s initial res and that they did not
create a seed trust for their daughter.

                                          -11-
power of attorney in this way—by funding a trust wherein Draper was the
beneficiary5—the POMS “consider[ed] [the trust] to be established through the
actions of the disabled individual . . . herself.” POMS SI 01120.203B(1)(g).
Therefore, according to the POMS, the trust did not qualify under § 1396p(d)(4)(A).
POMS SI 01120.203B(1)(f) (noting that “[t]he special needs trust exception does not
apply to a trust established through the actions of the disabled individual himself or
herself”).

       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 above, other facts
provide substantial evidence to support the conclusion that Draper’s parents acted
using the power of attorney when establishing the trust. See Travis, 477 F.3d at 1040
(“If substantial evidence supports the Commissioner’s conclusions, this court does
not reverse even if it would reach a different conclusion, or merely because
substantial evidence also supports the contrary outcome.”).

        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. POMS SI 01120.203B(1)(f). 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. Id. 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

      5
          This action expressly was permitted by the power of attorney.

                                          -12-
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. Only by enforcing compliance with the letter of the POMS can the agency
oversee the vast SSI program, effectively administer the Act, and consistently
distribute benefits to disabled individuals.

                                          D.

       Finally, we agree with the SSA’s finding that the state court’s nunc pro tunc
order did not “establish” the trust under § 1396p(d)(4)(A). See Browning v. Sullivan,
958 F.2d 817, 823 n.4 (8th Cir. 1992) (describing our procedure for reviewing
decisions based on evidence submitted to the Appeals Council but not the ALJ).
POMS SI 01120.203B(1)(f) notes that court-created trusts comply with
§ 1396p(d)(4)(A) only if “the creation of the trust [is] required by court order.” The
facts here show that the South Dakota court did not order the special-needs trust’s
creation. Instead, the court merely assigned itself a retroactive role in the already-
established Stephany Ann Draper Special Needs Trust. We find that this action
functioned as an “approval,” an action insufficient to comply with § 1396p(d)(4)(A).
See POMS SI 011020.203B(1)(f) (“Approval of a trust by a court is not sufficient.”).
Thus, we affirm the SSA’s determination that the state court’s action did not bring the
trust into compliance with the POMS.

                                         III.

       We therefore conclude that the agency and the district court correctly held that
the Stephany Ann Draper Special Needs Trust is a countable resource for SSI
purposes and that Draper is not entitled to SSI benefits as long as the funds in her
trust raise her resources above the $2,000 eligibility limit. We affirm.
                        ______________________________

                                         -13-