Divorcing Couple Cannot Shield Funds Held In Escrow From Being Counted In Determining SSI Eligibility Under Recent Federal Court Case

The Third Circuit Court of Appeals recently ruled that the proceeds from a home sale held in an escrow account pending an agreement between a divorcing couple as to their final distribution are countable resources for purposes of determining eligibility under the Supplemental Security Income (SSI) program.

In Kelley v. Commissioner of Social Security (3rd. Cir., No. 08-1652, May 15, 2009), the plaintiff, Marguerite Kelley suffered from chronic pain and fatigue associated with Crohn’s disease. She applied for SSI as well as Social Security Disability Insurance (SSDI) benefits while she was in the process of obtaining a divorce. As part of the divorce proceedings, Ms. Kelley and her husband agreed to place the proceeds from the sale of their home into an escrow account, with the understanding that the funds would eventually be distributed as part of the final settlement. Ms. Kelley’s application for SSI was denied due to excess resources after the Social Security Administration determined that the funds held in the escrow account were available resources. (Her SSDI application was also denied). Ms. Kelley appealed the denial of her SSI application, and the appeals counsel and district court both upheld the initial ruling. Ms. Kelley appealed.

The Third Circuit Court of Appeals affirmed. The Third Circuit held that the funds held in escrow resemble funds held in trust and should be governed by the same rules under 42 U.S.C. §1382b(e). As a result, the Court said that the escrowed proceeds were properly counted regardless of whether the escrow account is treated as a revocable or irrevocable trust. If the trust is revocable, the Social Security Act mandates that “the corpus of the [revocable] trust shall be considered a resource available to the individual.” 42 U.S.C. §1382b(e)(3)(A). In the case of an irrevocable trust, the statute further provides that if there are any circumstances under which payment from the trust could be made to or for the benefit of the individual (or of the individual’s spouse), the portion of the corpus from which payment to or for the benefit of the individual (or of the individual’s spouse) could be made shall be considered a resource available to the individual. 42 U.S.C. § 1382b(e)(3)(B). Although the exact terms of the escrow agreement were never made a part of the record, the law mandates the result reached by the lower court: the escrowed funds were properly counted as a resource for SSI purposes.

The Third Circuit Court of Appeals case can be found here – Kelley v Commissioner of Social Security