The Supreme Court of South Carolina

Re: Revised Minor Settlement Procedure

ORDER

I find that Title 62, Article 5, Part 4 (Protection of Property of Persons Under Disability and Minors) of the South Carolina Code of Laws outlines the Minor Settlement Procedure.

I further find that, pursuant to § 62-5-433 of the South Carolina Code of Laws, the attached Minor Settlement Procedure shall be used as a guideline for the basic statutory definitions and procedures for the settlement of claims in favor of or against minors or incapacitated persons.

Pursuant to the provisions of the S.C. Const. Art. V § 4 and S.C. Code § 14-23-1140,

IT IS ORDERED that the attached revised Minor Settlement Procedure, which is incorporated and made part of this Order, is hereby adopted effective immediately. The Minor Settlement Procedure is amended to add Section VIII which provides a procedure for Special Needs Trusts. This Order supersedes the Order of this Court dated July 23, 2008 providing for a uniform Minor Settlement Procedure.

IT IS SO ORDERED.

Columbia, South Carolina
July 26, 2011

MINOR SETTLEMENT PROCEDURE
July 26, 2011

Section 62-5-433 of the South Carolina Code of Laws provides the basic statutory definitions and procedures for the settlement of claims in favor of or against minors or incapacitated persons.  Other provisions of Tit1e 62, Article 5, Part 4 (Protection of Property of Persons Under Disability and Minors) may also apply in these procedures.

I. AMOUNT OF CLAIM DETERMINES JURISDICTION

“Claim” means the net or actual amount accruing to or paid by the minor or incapacitated person as a result of the settlement, S.C. Code § 62-5-433(A)(2).  This means the actual amount the minor will receive after payment of all expenses of litigation (e.g., attorney fees and litigation costs) and all outstanding reimbursements (e.g., medical bills, Medicaid liens, reimbursements to parents, etc.). 

Claims Over $25,000, S.C. Code § 62-5-433(B)

Circuit Court has exclusive jurisdiction.
Conservator appointment is required.

Claims Under $25,000, S.C. Code § 62-5-433(C)

Circuit and Probate Courts have concurrent jurisdiction.

If a conservator has been appointed, the conservator may settle the claim with or without court authorization.

If no conservator has been appointed, the guardian or guardian ad litem must seek court approval (with or without appointment of conservator); payment must be made in accordance with § 62-5-103.

Claims Under $2,500, S.C. Code § 62-5-433(D)

Settlement may occur without court approval.
Settlement may occur without appointment of a conservator.
Payment may be made in accordance with § 62-5-103.

NOTE: APPOINTMENT OF A CONSERVATOR

When a conservator is to be appointed, the conservator must be appointed by the Probate Court, pursuant to § 62-5-402. There is no requirement for the appointment of a conservator for claims under $10,000, nor is there a prohibition against it.  If requested by the parties or on its own motion, the court, upon good cause shown, may appoint a conservator for amounts under $10,000.  The court should not routinely require the appointment of a Conservator for amounts under $10,000.  Additionally, when a structured settlement is over $10,000, but the minor will not receive more than $10,000 per year during his or her minority, it is generally not appropriate to appoint a conservator.  Absent extraordinary circumstances, it is not appropriate to appoint a conservator when the minor will not receive any funds under a structured settlement until after the minor reaches adulthood.
Where appointment of a conservator is not required by statute, but is required by an insurance carrier, all costs of appointment should be borne by the carrier.

II. INITIATION OF PROCEEDING

A proceeding is initiated by the filing of a verified petition in the appropriate court in "the county in which the minor or incapacitated person resides," S.C. Code § 62-5-433(A)(1).  (This is not an ex parte petition.)

Verified petition must contain (§ 62-5-433(B)(1) or § 62-5-433(C)(1)):

A. All pertinent facts of the claim
B. Any payments made
C. Attorney fees
D. Expenses if any
E. A statement of justification
F. Commentary of best interest of the minor for claims over $25,000
G. Statement regarding notice requirements (e.g. all parties present or waivers/proof of delivery attached)

Order must contain (§ 62-5-433(B)(2) and (3)):

A. Approval of settlement
B. Authorization to consummate and execute a proper receipt and release or covenant not to sue
C. If net amount is over $10,000, require that payment be made through the conservator or, if no conservator has been appointed, through the clerk of court until a conservator is appointed.
D. If net amount is under $10,000 and a conservator exists, require payment to conservator and notice to the Probate Court which appointed conservator, or if no conservator, require that payment be made in accordance with § 62-5-103.

III. ATTORNEY

A guardian ad litem is appointed in most cases.

Pursuant to S.C. Code § 62-5-407(a), . . ."if at any time in the proceeding the court determines that the interests of the minor are or may be inadequately represented, it may appoint an attorney to represent the minor, giving consideration to the choice of the minor if fourteen years of age or older.  A lawyer appointed by the court to represent a minor has the powers and duties of a guardian ad litem.  If the minor already has an attorney, that attorney shall act as his guardian ad litem.”

The court may approve a reasonable attorney’s fee to be paid from the settlement proceeds.

IV. BOND

Bond shall not be required in minor settlement proceedings.  However, a bondis generally required, pursuant to § 62-5-411, in the appointment of a conservator, and shall be paid from the funds over which the conservator exercises authority.  Nothing herein is intended to prohibit the waiver of the bond requirement for good cause shown, such as the requirement for use of restricted accounts which protect against unauthorized disposition or other suitable security or protection of the assets.

V. COMMISSIONS

Commissions on minor settlements are not to be paid at the time of the settlement but may be paid to conservators at the time of the first accounting, since the net settlement proceeds are assets going into the conservatorship. 

VI. FEES

If a settlement action is initiated in Circuit Court, the appropriate filing fee shall be paid to the clerk of court.  If the case is then transferred to the Probate Court for the appointment of a conservator, the Probate Court shall receive a filing fee of $150.00 plus court costs based on the assets coming into the conservatorship under § 8-21-770(B) for the appointment of the
conservator.

If the settlement action is initiated in Circuit Court and the appropriate filing fee paid there, and the case is subsequently moved to Probate Court for the approval of the settlement, the Probate Court shall receive a $150.00 filing fee per petition.  If appointment of a conservator is also made, a filing fee of $150.00 plus court costs (based on the assets coming into the conservatorship), pursuant to statute, shall be applicable as well.

If the settlement action is initiated in the Probate Court, the Probate Court shall receive a $150.00 filing fee per petition.  If appointment of a conservator is also made, a filing fee of $150.00 plus court costs (based on the assets coming into the conservatorship), pursuant to statute, shall be applicable as well.

VII. STRUCTURED SETTLEMENTS

Structured settlements should be approved with appropriate consideration of appointment of a conservator for monies paid to a minor during minority.  The jurisdictional amount is determined by the present value of the structured settlement.  Probate Court judges who are not comfortable with approving these settlements may refer them to Circuit Court.

VIII. SPECIAL NEEDS TRUSTS (“SNT”)
            (Also called “SUPPLEMENTAL NEEDS TRUSTS” or “d(4)(A) Trusts”)
            (Use this information also for “Pooled Fund Trusts”)

Statutory authority:
Both SNTs and Pooled Fund Trusts are statutorily authorized trusts.  42 U.S.C. 1396 d(4) (A) authorizes Special Needs Trusts, and 42 U.S.C. 1396 d(4) (C) authorizes Pooled Fund Trusts.1

Use of Trusts and background rational:
These trusts allow a disabled minor or disabled adult who receives certain governmental benefits to continue to be eligible for the benefits2  even if the individual is awarded and receives settlement proceeds from civil actions, by way of inheritance, or by other funding sources.  Normally, the receipt of additional proceeds would disqualify the individual from being eligible for governmental benefits.  SNTs and Pooled Fund Trusts carve out an exception which allows the individual both to receive the proceeds and to maintain eligibility for governmental benefits. 

The premise behind a SNT and Pooled Trust is that the “extra” proceeds from the civil action or inheritance are available for specific supplemental items or supplemental assistance to the special needs individual.  That is, the “extra” trust funds can be used to pay for things that are above or in addition to the items provided by governmental benefits.  To that end, the funds in the SNT or Pooled Trust can be used by the Trustee to purchase goods or pay for services for the special needs individual (hereinafter the “Trust Beneficiary” or “Beneficiary”) that would not normally be covered by governmental benefits (anything from medications not covered by Medicaid to a home to a vacation—items considered “extra” to what is provided by the governmental benefits3). 

As a compromise to the carve-out exception, the SNT must direct that, at the death of the Trust Beneficiary (special needs individual), any unused funds in the trust must first be used to pay back the state for the Medicaid services that had been provided to the Trust Beneficiary during his life.  A Pooled Fund Trust has the same “pay-back”-type provisions but it is slightly different in that it may have different allocations for pay-back provisions.  For example, in some of the pooled trusts established by local Disabilities and Special Needs Boards, 20% of any funds remaining in the Beneficiary’s sub-account (after payment of the Beneficiary’s final expenses) are used to reimburse the non-profit for its administrative services. The remaining 80% is distributed pro-rata to the sub-accounts of the remaining Pooled Fund Trust Beneficiaries.  The state will only be repaid for the Medicaid services provided to the Trust Beneficiary during his lifetime if the amounts remaining in the Beneficiary’s sub-account after his death are deemed not to be “retained by the Trust” pursuant to 42 U.S.C. 1396 d(4) (C).

Definition of “disabled minor” and “disabled adult”
SNT and Pooled Fund Trusts are created and established specifically for “disabled minors” and “disabled adults” as defined by law.  A minor is “disabled,” as defined by 42 U.S.C. 1382 c(a)(3)(C), if the minor has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.   “Disabled adult” is defined by 42 U.S.C. 1382 c(a)(3)(A) as a person who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.  Disability determinations are regulated further at 45 CFR Part 416.  

The Probate Court is not responsible for making these determinations, but a disability finding may be necessary for Probate Court jurisdiction pursuant to protective proceedings in SC Code Ann. §62- 5-401 and §62-5-402.  SC Code Ann. §62-1-302, grants the Probate Court exclusive original jurisdiction over the protection of minors and incapacitated persons.  Incapacitated person, as defined in SC Code Ann. §62-5-101, includes a person impaired by disability.  Disability, as described in SC Code Ann. §62-1-201, is a basis for a protective order which then can allow for the creation and establishment of a SNT or a Pooled Fund Trust by the Probate Court.

Note: A SNT or a Pooled Fund Trust may be appropriate in lieu of a traditional Conservatorship.        

Creating a SNT

The basic requirements to create a SNT are set forth in federal law.  Briefly, they are as follows:

(1) The Trust Beneficiary must be under age 65;
(2) The Trust Beneficiary must be disabled as referenced above;
(3) The Trust must be irrevocable and created for the sole benefit of the Trust Beneficiary;
(4) The Trust must be created by the Trust Beneficiary’s parent, grandparent, legal guardian, or a Probate Court for the purpose of containing the assets of the Trust Beneficiary, (the Trust Beneficiary may not create the SNT); and
(5) At the Trust Beneficiary’s death, the state Medicaid program must be notified and repaid from the corpus of the Trust for the services provided to the Trust Beneficiary.

Creating a Pooled Fund Trust

The basic requirements to create a Pooled Fund Trust are set forth in federal law.  Briefly, they are as follows:

1) The Trust Beneficiary must be disabled as referenced above;
2) The Trust must be established and managed by a non-profit association;
3) A separate account is maintained for each Beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts;
4) Accounts in the trust are established solely for the benefit of the Trust Beneficiaries by a parent, grandparent, legal guardian, or by the Probate Court; and
5) To the extent that amounts remaining in the Trust Beneficiary’s account upon the death of the Beneficiary are not retained by the trust, the trust pays to the State from the remaining funds in the account an amount equal to the total cost of medical assistance paid on behalf of the Beneficiary under the State plan and in accordance with the provisions of the particular Pooled Fund Trust.

A. Considerations:
When deciding whether a SNT or a Pooled Fund Trust is appropriate, the Court should consider all relevant factors, including, where appropriate, the following:

1.) The amount of funds or other assets involved.  Is this amount sufficient to disqualify the Trust Beneficiary from public benefits?  In order to make this evaluation, the Judge will need to know, or be informed by the parties, what benefits the person receives or wishes to receive and the income and resource limitations for those programs.  For example, SSI currently has a $674.00 per month income limit and a $2,000.00 countable resource limit.  Under ABD Medicaid there is a countable resource limit of $6,600.00.  A child covered under one of the low income programs will be considered part of a budget group (certain people living in the home) for purposes of determining income and resource limitations.  Typically, the budget group can have combined countable resources of $30,000.00.  Income varies according to the number of people in the budget group.

2.) Are there sufficient funds and/or other assets to justify the expense and efforts involved in creating a SNT?  If the amount is limited, would a Pooled Fund Trust be more appropriate?

3.) What is the source and purpose of the funds and assets? 

4.) If the Trust Beneficiary is receiving Medicaid (but not SSI), has the SNT been pre-approved by the S.C. Department of Health and Human Services (“DHHS”)?

5.) Who is the proposed Trustee?  Is that person or institution reliable and cognizant of the rules relating to administration of SNTs?  Should a parent or guardian serve as a co-Trustee or Special Trustee? 

6.) Does the SNT contain appropriate restrictions to ensure the funds or other assets are used for the benefit of the Trust Beneficiary and not for other family members?  Are there controls in place to ensure that the funds and/or assets are used in accordance with current regulations and solely for the benefit of the Trust Beneficiary and not benefit more than incidentally the Trustee or other persons?

7.) If the SNT purchases a home or a vehicle for the Trust Beneficiary's benefit, should other family members reimburse the SNT for their use of those assets?  If a home purchase is contemplated, are applicable actuarial tables used for computations for life estates?  Does the Trust contemplate title and liability issues with respect to the ownership of these types of assets by the Trust or for the benefit of the Trust Beneficiary?

8.) Are family members providing care-giving services to the Trust Beneficiary?  If such services are contemplated, does the Trust include provisions for employment of family members and factors to consider in calculating compensation?

9.) Should Probate Court or other independent approval be required for Trust expenditures after the Trust is funded and operating?

10.) Is bonding or other security required or appropriate for the Trustee?

B. Process:

If a Court believes that during the course of the approval of a settlement in favor of a disabled minor or disabled adult that a SNT is or may be appropriate for the disabled minor or disabled adult, the following procedures should be followed:

1.) When an action results in a judgment or settlement in favor of a person receiving Medicaid and/or SSI (or who is anticipated to receive Medicaid and/or SSI), the Court handling the settlement should inquire as to the appropriateness of a SNT considering the factors set forth above.

2.) If a SNT is or may be appropriate for all or a portion of the funds and/or other assets, counsel for the Trust Beneficiary should arrange for the creation of an appropriate SNT.  A SNT is a complicated, specialized legal document that must conform to multiple federal and state requirements; they should only be prepared by a professional who is familiar with SNT requirements.

3.) The SNT should be approved by DHHS if the Trust Beneficiary is receiving Medicaid, but not SSI.  DHHS prefers to receive the SNT after it has been executed.  If the Court is establishing the SNT, approval by DHHS may occur during the pendency of the SNT.  The SNT must be submitted to DHHS through the Trust Beneficiary's local county eligibility caseworker.  The caseworker will notify the submitting attorney or the Court when the Trust is approved or disapproved. 

4.) DHHS does not review or approve SNTs for Trust Beneficiaries who are not Medicaid applicants or beneficiaries.  In SC, an SSI Beneficiary is automatically eligible for Medicaid.  When the source of Medicaid eligibility is through SSI eligibility, approval by DHHS of a SNT is not binding on Social Security and, therefore, these Trusts should not be submitted to DHHS for approval. 

5.) Since Medicaid is entitled to recover from the Trust corpus its payments on behalf of a Medicaid recipient who is a Trust Beneficiary, including those recipients whose eligibility is derived through the receipt of SSI, a copy of the executed SNT must be sent to:

Division of Policy and Planning
Attention: SNT Coordinator
SC Dept. of Health and Human Services
PO Box 8206
Columbia, SC 29202-8206

6.) Once the SNT has been approved by DHHS, it should be submitted to the Probate Judge of the Trust Beneficiary’s county of residence for the Probate Court’s approval of the funding of the SNT with the Trust Beneficiary’s funds and/or assets.  If the Trust approval was not part of a settlement approved by the Probate Court, a protective proceeding action must be commenced in the Probate Court under §62-5-408(3)(a) of the S.C. Code of Laws for approval of the funding of the SNT.  In conjunction with the Probate Court’s approval of the funding of the SNT, counsel for the disabled minor or disabled adult may also seek creation and establishment of the SNT through the Probate Court.

7.) The Court in which the settlement action is approved should direct that the net settlement funds be paid directly into the SNT approved by the Probate Court (to ensure that the Trust Beneficiary is not inadvertently disqualified by actual or constructive receipt of the settlement funds) and, in the event the Probate Court determines that the SNT is not appropriate for the Trust Beneficiary, the Court in which the settlement action is approved should direct that the net settlement funds be paid to the Trust Beneficiary's conservator appointed by the Probate Court.

8.) Notwithstanding the provision under S.C. Code §62-5-433 (that provides that jurisdiction for approval of settlement of claims in favor of or against minors or incapacitated persons may be in the Circuit Court), the Probate Courts of this state have exclusive original jurisdiction under S.C. Code §62-1-302(a)(2) over all subject matter related to the protection of minors’ property and incapacitated persons’ property, which includes the creation and establishment of a SNT and the approval of the transfer of a minor or incapacitated person’s property, i.e., funds and/or other assets, to a SNT.  Therefore, if the settlement is conducted in the Circuit Court, the proper course of action is for the Probate Court to create and establish the SNT, if no parent, grandparent, or legal guardian is available, and approve the funding of the SNT with the Trust Beneficiary’s anticipated net settlement funds prior to the final approval of the settlement by the Circuit Court.

9.) For a Pooled Fund Trust, if the Beneficiary is competent, they may individually sign the joinder agreement to join the Pooled Fund Trust.  If the Beneficiary is not competent or is a minor, the parent, grandparent or legal guardian may sign the joinder agreement.  In either of these cases, the Probate Court must still approve the funding of the Trust.  If the Beneficiary is not competent or is a minor and no other person is available to sign, the Probate Court may authorize the funding of the Pooled Fund Trust or may appoint a Guardian or a Special Conservator with specific and possibly limited authority to sign the joinder agreement.