United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
SIDNEY I. SCHENKIER, Magistrate Judge.
Plaintiff Dietrich Williams, through his court-appointed guardian, Barbara Martin, seeks reversal of a final decision by the Commissioner of the Social Security Administration ("Commissioner"), denying Mr. Williams's application for Supplemental Security Income ("SSI") (doc. # 23). The Commissioner has filed a cross-motion for summary judgment to affirm the denial of SSI (doc. # 30). For the reasons set forth below, we reverse the Commissioner's decision in part and affirm in part.
We begin with a summary of the administrative record and procedural history of this case. In Part A, we discuss the general background information, the facts regarding Mr. Williams's injury and disability, and Mr. Williams's resulting settlement agreement. In Parts B and C, we describe the Illinois Disability Pooled Trust and then detail the creation of Mr. Williams's supplemental needs trust, respectively. Then, in Part D, we address the ALJ's opinion, as well as the Appeals Council's opinion.
Mr. Williams is disabled after suffering a traumatic brain injury caused by an automobile accident on March 25, 1991 (R. 54, 118). He filed a negligence action in the Circuit Court of Cook County against the City of Chicago, seeking compensation for his injuries arising from the accident (R. 47, 54). In September 1994, the Circuit Court of Cook County Probate Division ("Probate Court") adjudicated Mr. Williams disabled and appointed his mother, Barbara Martin, as his guardian (R. 118).
On November 30, 1994, the Circuit Court of Cook County Law Division ("Law Division") entered an order approving a structured settlement of the negligence action for a total of $650, 000 (R. 42-60). The settlement agreement provided Mr. Williams with a lump sum payment of $82, 593.12, which the court directed "shall be placed into an account" by Ms. Martin, as guardian, "in the name of Dietrich Williams"; the court further ordered that the account "shall be supervised by the Probate Division of the Circuit Court of Cook County" (R. 42, 45-46). In addition to the lump sum payment, the settlement agreement provided for the purchase of two annuity policies (R. 47-53). The two annuity policies, one issued by Transamerica Occidental Life Insurance Co. ("Transamerica") and one issued by Safeco Life Insurance Co. ("Safeco"), were to provide monthly payments to Mr. Williams starting on December 15, 1994, as well as scheduled lump sum payments payable on 13 occasions between 1995 and 2024 (R. 52-53). As part of its order approving the settlement, the court stated that the "Plenary Guardian is authorized and directed to... distribute the proceeds in accordance with the provisions of this Order subject to further Order of the Probate Division" (R. 46).
The structured settlement agreement contained a section regarding "Plaintiff's Rights to Payments, " which stated in pertinent part:
It being understood Plaintiff is and shall be a general creditor to the Defendant. Said payments cannot be accelerated, deferred, increased or decreased by the Plaintiff and no part of the payments called for herein or any assets of the Defendant is to be subject to execution or any legal process for any obligation in any manner, nor shall the Plaintiff have the power to sell or mortgage or encumber same, or any part thereof, nor anticipate the same, or any part thereof, by assignment or otherwise.
(R. 48). The Safeco Annuity contract contained the following section pertaining to assignment:
An absolute assignment of this annuity contract will make the assignee the new owner of this annuity contract. We will not be bound by an assignment until written notice from the owner of this annuity contract is recorded at our home office.
No payment under this annuity contract may be accelerated, deferred, increased, or decreased, or anticipated, sold, assigned, or encumbered in any manner by the annuitant (or either joint annuitant) or any other recipient of the payment.
(R. 39). Likewise, the Transamerica Annuity contract contained provisions regarding assignment rights. On the Schedule of Benefits page, a stamped Notice stated:
This annuity contract has been placed in the possession of: Dietrich Williams for the sole purpose of perfecting a security interest that the above named has in his contract. The above named is not the owner of, and has no ownership rights in, this contract and may not assign or otherwise use it as any form of collateral. Please contact the issuer for further information.
(R. 58). The General Provisions page contained a section regarding "Change of Owner, " which provides:
An assignment of this policy will not be binding upon the Company until recorded at its Home Office. The Company assumes no responsibility for the sufficiency or validity of any assignment. However, when an assignment is filed with the Company and recorded at the Home Office, the owner's rights will be subject to it.
(R. 58A). Both annuity contracts provided that Mr. Williams was the sole annuitant and creditor of the respective annuities (R. 35-41, 57-60).
The Illinois Disability Pooled Trust ("IL Trust") was established on July 17, 1998, by a Master Pooled Trust Agreement between the "Illinois Disability Association, as Settlor, and Co-Trustee along with LaSalle National Bank of Chicago, Illinois as Corporate Co-Trustee" (R. 462). The Master Pooled Trust Agreement was made pursuant to 42 U.S.C. § 1396p(d)(4)(C), 305 ILCS 5/12-1(a), 89 Ill. Admin. Code § 120.347, and 760 ILCS 5/15.1, creating an "irrevocable pooled trust" for the "sole benefit of individual Beneficiaries who are defined as disabled pursuant to Section 1614(a)(3) of the Social Security Act, codified at 42 U.S.C. § 1382c(a)(3)" (R. 462, 465). In order to participate in the IL Trust, a grantor and a trustee must execute a "Joinder Agreement" (R. 469). After a Joinder Agreement is executed, a trust sub-account is established for the beneficiary; this trust sub-account is irrevocable: "A Grantor or other contributor to the Trust shall not be permitted to revoke a Joinder Agreement or withdraw any funds contributed to the Trust under such Agreement" ( Id. ). Once the trustee of the IL Trust receives and accepts assets from the grantor, the IL Trust agreement provides that "the Trust, as to the Grantor of such assets and the designation of the respective Beneficiary, shall be irrevocable and the contributed assets shall not be refundable" ( Id. ). The agreement further provides that the "Grantor shall have no further interest in and does thereby relinquish and release all rights in, control over, and all incidents of interest of any kind or nature in and to the contributed assets... and all income thereon" ( Id. ).
The IL Trust was established as a supplemental needs trust (R. 464), which is a "type of trust that limits the trustee's discretion as to the purpose of the distributions. This type of trust typically contains language that distributions should supplement, but not supplant, sources of income including SSI or other government benefits." Programs Operation Manual System ("POMS") § SI 01120.200(B)(13). Thus, the funds held in the IL Trust are to be "used only for supplemental needs and the supplemental care of a Beneficiary, " with the "[i]ncome or corpus of the Trust [being] available to a Beneficiary only when the Trustee in its complete and absolute discretion elects to disburse such funds" (R. 464-65). "It is not the purpose nor objective of [the IL Trust] to provide for or to make expenditures for a Beneficiary's basic maintenance, support, medical, dental or therapeutic care, or any other appropriate care or service that may be paid for or provided by other sources" (R. 465). In order to secure distributions, a beneficiary, or his representative, must provide documentation to the trustee for each distribution request (R. 466). The IL Trust agreement specifies that the trustee, in exercising its discretionary authority, "shall not exercise any discretionary powers herein granted to it in any manner which would disqualify a Beneficiary from qualifying for federal, state or local government benefits or programs which a Beneficiary may be entitled to receive on account of his or her disability or medical condition, unless determined by the Trustee to be necessary and advisable, notwithstanding the consequent loss of such benefit" ( Id. ).
Ms. Martin, as Mr. Williams's guardian, filed a petition for leave to create a trust sub-account in the IL Trust; the Probate Court granted the petition on January 25, 1999 (R. 179-80). The Probate Court order permitted Ms. Martin to create a trust sub-account on behalf of Mr. Williams by execution of a Joinder Agreement ( Id. ). On March 5, 1999, the Probate Court then entered an "Order to Approve Budget and Transfer of Assets to Illinois Disability Pooled Trust" (R. 177-78). This order approved the transfer of assets from Mr. Williams's estate to the trust sub-account in the IL Trust in Mr. Williams's name, including the transfer of the Safeco and Transamerica annuities, "including monthly payments and lump sum distributions" (R. 178). The order stated that the transfer was "in the best interests of the Ward and his estate" (R. 177).
Subsequently, on March 16, 1999, Ms. Martin, as plenary guardian and grantor, enrolled in and adopted "The Illinois Disability Pooled Trust Fund Agreement" by completing and signing the Joinder Agreement (R. 61-89). In the Joinder Agreement section regarding "Source of Funds, " Ms. Martin listed the structured settlement, as well as the Safeco and Transamerica annuities, as the source of funds to be placed in the IL Trust (68-69, 74). Both annuities have identical payment schedules, with each providing for "$500 paid monthly to Dietrich Williams for life with 30 years certain" and the following additional periodic payments:
(R.52-53). On April 1, 1999, the Probate Court entered an order ...