On June 25, 2019, the Social Security Administration (the “SSA”) published changes to its interpretive guidance, known as its Program Operation Manual System (the “POMS”). These changes may reflect a radical expansion in the number of situations where an attorney must obtain pre-approval from the SSA for any fees charged for estate planning work to assist a client with a special needs family member, or possibly to assist any client who passes assets to beneficiaries in trust. Specifically, attorneys may need the SSA to pre-approve their fees when their legal services could impact a beneficiary’s present or future possible qualification for Supplemental Security Income (“SSI”) benefits. See POMS GN 03920.007. SSA made these POMS changes without any public notice or comment.

The POMS is the system of rules created by the SSA to provide additional clarity to the convoluted Social Security statues and regulations. Unlike the statutes and regulations, these rules are promulgated without any notice or opportunity for comment. Once promulgated, they essentially become the law of the land, and Social Security employees rely on these rules when making decisions concerning eligibility for SSI. While the POMS are not technically as binding as a statute or regulation, courts give weight to these rules since they are promulgated by the experience and information of administrators in this specialized field. See Skidmore v. Swift, 232 U.S. 134, 139 (1944). Further, the Supreme Court has maintained that administrative rules “constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” Id.

Estate planning and elder law attorneys normally advise their clients who have special needs family members to pass these family members their eventual inheritance not outright but in a supplemental needs trust or community pooled trust. In this way, the special needs family member will benefit from their future inheritance without risking their eligibility for means-tested government benefits such as SSI. Means-tested government benefits are welfare benefits where the recipient has insufficient income and assets to support themselves, and may require the recipient to be considered legally disabled. Even when the client does not have a known special needs family member, estate planning and elder law attorneys often include a savings type provision in their Wills and trusts that enables a trust created for a beneficiary to be changed to a supplemental needs trust if the beneficiary may otherwise qualify for means-tested government benefits. Further, a fully discretionary trust may also be able to effectively provide this same benefit, even if it is not as clear, without ever being called a supplemental needs trust. Since any person may one day need means-tested government benefits, such as SSI, even if no inkling of this need presently exists, these POMS changes are a potential threat to all estate planning and elder law attorneys.

Interestingly, these new rules do not only impact estate planning and elder law attorneys. They apply to any attorney attempting to assist someone who is trying to remain on SSI, who has a pending claim for SSI, or possibly who may have a future claim for SSI. Thus, these rules could impact real estate attorneys who draft deeds for property to be placed in special needs trusts and personal injury attorneys who seek to have clients’ recovery placed in a special needs trust. While not clear, these rules may also apply to non-attorney professionals who provide any advice as to how to benefit a client’s special needs family member without jeopardizing that person’s current or future eligibility for means tested government benefits. An attorney who tries to comply with these newly-expanded fee pre-approval requirements should expect significant hassle, a two to three year processing period, and no guarantee that fees already approved by a client will ever be approved by the SSA.

Any attorney who fails to follow these rules could be found guilty of a misdemeanor as to each client matter, with each misdemeanor conviction punishable by up to a $500 fine and up to one year in prison. See 42 U.S. Code Section 406(a)(5).

Government Threatening to Jail Estate Planning & Elder Law Attorneys, Part One: “Granny and Her Attorney Go to Jail.”

If government threats to jail estate planning and elder law attorneys sound somewhat familiar, that’s because these new POMS are not the first time the government has attempted to restrict access to attorneys by individuals with disabilities. In the 1990s, the government tried to stop attorneys from enabling their clients to become eligible for Medicaid benefits to help pay for their nursing home care without having to first spend down all of the clients’ assets. This kind of planning is often referred to as Medicaid planning. Congress first enacted a law that made it a felony for both the elderly client and the client’s attorney to undertake legally permissible Medicaid planning, which law was commonly referred to as the “Granny and her Attorney Go to Jail Act.” After the public outcry from the threat of putting the elder in jail, Congress modified the law so it only made it a felony as to the attorney providing Medicaid planning advice and assistance, which was then commonly referred to as the “Putting Grandma’s Attorney in Jail Act.” In her wisdom, then-Attorney General Janet Reno determined that the law was unconstitutional because it violated the First Amendment’s protection of free speech, and stated that she would not enforce it. Later, a U.S. District court in NY found the same law to be unenforceable for the same reason. The law still exists today, but it is not being enforced.

Government Threating to Jail Attorneys, Part Two: “Attorney Gets Paid and Goes to Jail.”

Existing law permits the SSA to prescribe the maximum fees, by rule or regulation, which may be charged for services performed in connection with any claim before the SSA. See 42 U.S.C. Section 406. A review of the legislative history shows Congress was concerned about significant contingency fees being charged by lawyers to assist the poor in getting the welfare benefits to which they were entitled. In 1968, the U.S. Supreme Court affirmed that this limitation on attorney fees was constitutional. Randolph v. United States, 274 F. Supp. 200, 203-204 (M.D.N.C. 1967), aff’d, 389 U.S. 570 (1968). Other courts have stated that the services at issue must be performed in connection with a claim before the SSA.

These SSA fee limitations were first fleshed out in Regulations. The Regulations appear to limit the SSA’s authority to limiting fees that are related to an attorney’s representation of an individual who is actively seeking to claim SSI before the SSA. The specialized attorneys that handle SSI qualification matters have been aware of these rules for some time, and the need for them to comply with these rules is not new. Under these rules, an attorney generally cannot earn more than $6,000 for handling a Social Security Disability appeal, regardless of the time and effort invested in the matter.

The new POMS rule seems to significantly expand the individuals subject to the fee pre-approval requirements. It also provides no guidance as to what fee an attorney may charge or how SSA will make such determinations.

It is possible that these new changes in the POMS were just poor drafting and not intended to significantly expand the fee pre-approval requirements. In this case, these rules would continue to only apply if the attorney agreed to represent an individual claimant before the SSA as to an existing or requested SSI benefit claim. However, it is also possible that the SSA wanted to expand its oversight to prevent some perceived fee abuses, and decided not to notify the public or permit any comment period before publishing these new rules. In this case, these new rules would apply in practically all situations where an individual with special needs is involved as either a client or a potential beneficiary of a client’s estate plan and the planning could directly or indirectly improve that individual’s chances of qualifying to receive SSI currently or at some point in the future. A third option is also possible: that the SSA only wishes to expand these rules so they apply anytime someone directly or indirectly helps an individual claimant with an SSI related claim that is currently before the SSA.

At this point, it is our understanding that various professional organizations have requested clarification from the SSA as to these new POMS, but so far the SSA has provided no such clarification.

Until We Receive Further Guidance From SSA as to the Intended Meaning of the New POMS, What Steps Should Attorneys Consider Taking to Protect Themselves in Light of This Potentially Significant Expansion in the SSA’s Fee Pre-Approval Requirements?

Attorneys need to review these POMS and this area of law to satisfy themselves as to what steps they wish to take. We do not believe any steps will fully eliminate your risk other than (a) requesting that all of your estate planning fees be pre-approved by SSA, at least to the extent the planning either creates or may create a supplemental needs trust or passes assets to a community pooled trust, or (b) completely ceasing to practice in the areas of estate planning or elder law. This is not a viable option for most estate planning and elder law attorneys.

The new POMS are much more likely to end up applying to all work related to the preparation and funding of first party trusts (ones created using the special needs beneficiary’s own assets) before they would be held to apply to third party supplemental needs trusts or third party community pooled trust accounts (ones funded with assets that belong to someone other than the special needs beneficiary). Thus, while many estate planners do not assist clients with the creation of first party special needs trusts, those that do will need to be even more careful.

If an attorney is risk averse, that attorney may decide to no longer accept clients who are known to have a family member with special needs that the potential clients wish to benefit under their estate plan. We do not believe you can ethically accept the engagement and then fail to properly advise the clients. For example, you should not take on a client matter and then either ignore or advise against proper special needs planning, i.e., utilizing either a supplemental needs trust or community pooled trust to receive any benefits that would otherwise pass to a beneficiary with special needs. We also do not believe it would be ethical to recommend that clients pass assets only to the family members who do not have special needs and then simply request that those family members use those assets to help provide for the family member with the special needs (this is sometimes referred to as “poor man’s estate planning” because it avoids the use of any kind of trust).

Attorneys may decide that they need to request pre-approval of at least part of their fees. Fees for which pre-approval were sought could be held in the attorney’s trust account until the SSA officially notifies the attorney of the approved legal fee amount. Unapproved fees would need to be returned to the clients. The SSA may permit bifurcation of the legal fee between those fees that require pre-approval (i.e., the portion of the fees that is related to current or future possible claims for SSI benefits before the SSA) and the portion of the fees that have to do with the rest of the estate planning and do not require SSA pre-approval. Another similar option is to set aside the fees for all planning and document preparation that relates to supplemental needs trusts or community pooled trusts, and have those fees pre-approved.

Attorneys should consider drafting their engagement letters so that the two types of fees are clearly and separately stated in the same engagement letter. It may even be better to create a separate engagement letter for each type of fee. Attorneys should consider adding language to their engagement letters that state that the attorney is not agreeing to represent the client, or any beneficiary under the client’s estate plan, before the SSA on any pending or future claim, and that the attorney in no case is to be considered a Representative before the SSA on any present or future claim on behalf of the client or any beneficiary under the client’s estate plan. This statement could also provide that the attorney will be happy to refer the client to another attorney who may be able to assist them with any SSA related matters, at the client’s request.

Until We Receive Further Guidance From SSA as to the Intended Meaning of the New POMS, What Steps Has Morgan & DiSalvo decided to take?

At this point, we will likely make changes to our engagement letters as discussed above. While these changes will not provide guaranteed protection from future SSA actions, these changes should make it harder for the SSA to argue that the expansion of its POMS rules are a reasonable interpretation of existing statutory law. We believe we have a duty to assist our clients to the best of our ability under the law. We also believe we have a right to be paid for our services like any other service provider in our country. If a strong public policy exists to create a law to limit this ability, we will adhere to these legally permissible limitations. However, at this point, we are not aware of any public policy that supports the SSA’s significant expansion of its fee pre-approval requirements beyond those attorneys who directly or indirectly represent a client before the SSA in an active claim for SSI benefits. In fact, the legislative history tells us Congress was concerned that attorneys were taking advantage of the poor and thought that the poor needed protection. As such, Congress gave the SSA authority to prescribe the maximum fees, by rule or regulation, which may be charged for services performed in connection with any claim before the SSA. However, the SSA is not actually prescribing maximum fees, but is instead requiring a pre-approval process that is burdensome and lengthy, which may actually serve to limit the ability of potential clients to obtain legal help by making attorneys who might otherwise help refrain from doing so out of fear that they will never be paid a reasonable fee in a reasonable time. Further, we believe that the changes to the POMS are likely an impermissible expansion of the authority Congress provided to the SSA to prescribe maximum fees charged to represent claimants in connection with their claims before the SSA. The attorneys at issue in many of the cases where the new POMs may apply are not providing services to the actual SSI claimant, directly or indirectly, who has a claim before the SSA. Instead, these attorneys are assisting third parties, often a parent, grandparent, or other family member of a potential SSI claimant, with those parties’ own estate planning. In the United States, we have the right to control where our wealth goes and how it passes. If a third party wishes to provide a benefit under his or her estate plan to a beneficiary in a legally permissible manner so that the assets provided will not defeat or reduce the beneficiary’s possible present or future SSI benefits, that is the third party’s right. The third party should also have the right to hire and voluntarily pay a competent service provider, in this case an attorney, who can assist with the necessary planning to accomplish their estate planning objectives. We also believe other significant legal arguments exist for the courts to find that the SSA’s potentially radical expansion of their fee pre-approval requirements is unenforceable. However, attorneys who are thinking of following in our footsteps should be careful, as we do not and cannot claim that our position will eventually be proved correct. We are taking this position based on the belief that we are both correct and that we have a duty to our clients and the legal profession. We understand the legal risks, and we are willing to take on these risks.

Is Simply Waiting for Further Guidance From the SSA Before Taking Any Preventative Steps a Safe and Viable Option?

The answer is likely no. While various professional groups are working to get more guidance, it is not likely that the SSA will provide this guidance any time soon. It is true that we are not sure if the new POMS were intended to radically expand the prior fee pre-approval requirements or if the POMS are just an example of poor drafting and lack of public communication. However, the potential penalties for non-compliance are real and they are significant. At this point, we are only aware of two possible SSA actions on these POMS, and both took place in the Chicago Region. It is our understanding that one attorney was asked for a copy of his engagement letter relating to setting up a fund for a client at a community pooled trust. It is also our understanding that a second attorney was asked if his fees had been authorized.

Special thanks goes to Kevin Urbatsch for his excellent analysis of these issues set out in his materials entitled “New POMS on Attorney’s Fees: Does Every Attorney Who Drafts a Special Needs Trust Require the Social Security Administration’s Permission Before Being Paid or Risk Going to Jail?”

We remain proudly available to assist those with special needs and their family members. If you are interested in more information about special needs planning, please contact us by email at info@morgandisalvo.com or by telephone at 678-720-0750.

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