Grace, Adriane. “Real Estate, Probate, and Trust Law Reporter.”, Texas Bar, May 2020, https://texasbar.informz.net/texasbar/data/images/Sections/2019-2020/REPTL/58-2/Whattheestateplanningattorney.pdf.

What the Estate Planning Attorney Needs to Know About Social Security Fee Authorization and the New Executive Orders

SSA Fee Authorization Policy

The Social Security Administration (SSA) regulates the charging of fees by attorneys who represent claimants in any claim before the Commissioner. The Social Security Act specifically states:

whenever the Commissioner of Social Security, in any claim before the Commissioner for benefits under this subchapter, makes a determination favorable to the claimant, the Commissioner shall, if the claimant was represented by an attorney in connection with such claim, fix (in accordance with the regulations prescribed pursuant to the preceding sentence) a reasonable fee to compensate such attorney for the services performed by him in connection with such claim.

42 U.S.C. § 406(a)(1).

From this statutory framework, SSA creates rules, regulations, and policy guidance manuals concerning when an attorney representing a claimant can charge a fee, how much they can charge, and providing for the direct withholding of the attorney’s fee from a claimant’s past-due benefits. This statute is also the framework for a well-founded understanding among attorneys that fee authorization is not required when an attorney has not represented someone in a claim before the Commissioner.

Yet, this past summer, Social Security released now-archived POMS GN03920.007, “Legal and Specialized Services Not Subject to Fee Authorization,” in an underhanded attempt to regulate the charging of legal fees by estate planning attorneys drafting special needs trusts (SNTs) for trust beneficiaries who did not have an active claim for Supplemental Security Income (SSI) benefits. For the uninitiated, POMS is an internal policy manual published by Social Security designed to instruct Social Security employees on how to administer the Social Security benefit programs. Thus, understandably, this informal policy issuance by the agency shocked and frustrated those practicing in the areas of estate planning, special needs planning, elder law, and social security appeals. See Lori Leu and Lauren Olson’s article, New Social Security Regulations on Attorney’s Fees and the Possibility of Jail Time for Special Needs Planning, 57 REPTL 4 (2019), for an in-depth discussion of these practitioners’ concerns.

Ultimately, however, this policy issuance led to a successful lobbying campaign by the National Academy of Elder Law Attorneys (NAELA), Special Needs Alliance (SNA), and the National Organization of Social Security Claimant Representatives (NOSSCR) to have it rescinded. A mere three months after
publication of POMS GN03920.007, SSA announced on September 25, 2019, that the POMS policy had been “archived.” This is the administrative equivalent of “oops, never mind!” With the archival of this POMS policy, estate planners can return to business as usual before this policy was ever a thought: drafting SNTs for the benefit of disabled individuals to plan for the possibility of claiming SSI benefits.

How New Executive Orders Will Curb the Long-Arm of SSA Policymaking

As to the future, the kind of back-door policymaking exemplified in POMS GN03920.007 is no longer an option for SSA. On October 9, 2019, President Trump issued two new Executive Orders in an effort to curb covert regulation of the public: “Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents” and “Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication.” 84 Fed. Reg. 55235 (Oct. 15, 2019); 84 Fed. Reg. 55239 (Oct. 15, 2019).

The sum of both EOs is this: an executive agency cannot secretly create new rules, or use “guidance documents,” in an attempt to impose legally binding requirements on the public or to regulate the conduct of those outside of the Executive Branch without prior notice. Instead, EO 13891 requires executive agencies to utilize the notice-and-comment rulemaking procedure of the Administrative Procedure Act (APA) before promulgating any rule that would regulate the public. Moreover, EO 13892 prohibits executive agencies from treating noncompliance with “guidance documents” as a violation of an agency’s applicable statutes or regulations if it was not promulgated using this notice-and-comment procedure.

In other words, estate planning attorneys can breathe a collective sigh of relief under these new EOs because (1) an attorney cannot be jailed or fined for failing to comply with standards of conduct surreptitiously announced by SSA in the POMS and HALLEX; and (2) the next time SSA tries to regulate the conduct of attorneys through a new rule or guidance document, it must first use the APA noticeand-comment rulemaking procedure. This is significant because notice-and-comment rulemaking is a more democratic process of executive branch policymaking. Under the notice-and-comment procedure, executive agencies utilize the Federal Register to publish a “notice of proposed rulemaking” and invite the public and organizations, such as NAELA, SNA, and NOSSCR, to weigh in or “comment” on the proposed rule. 5 U.S.C. § 553.

Agencies take these comments seriously. There have been many instances where a controversial rule was changed based on the comments from the public and lobbying organizations. Comments signal to the agency potential weaknesses in their rulemaking authority and the possibility of exposing the government to civil lawsuits if the rule is finalized in its proposed form.

Organizations like NAELA, SNA, and NOSSCR are likely to get involved again if SSA issues any further rules like POMS GN GN03920.007 because such a rule is ultra vires. The Social Security Act states in no ambiguous terms that the Commissioner can fix the attorney’s fee “in any claim before the Commissioner for benefits under this subchapter.” Because the statute does not give the agency the authority to regulate fees where no claim has been made, a rule providing for the fixing of a fee for an attorney drafting a contingent special needs trust would be outside the scope of the agency’s statutory authority. Additionally, such a rule could be scrutinized on constitutional grounds as an infringement on the states’ authority to regulate the profession and conduct of attorneys. See Texas Disciplinary Rules of Conduct 1.04 regarding fees Texas attorneys can charge within the attorney-client relationship.

Therefore, attorneys who practice estate planning, trusts, or guardianship are highly encouraged to join NAELA, SNA, or NOSSCR and participate in any opportunity to comment on proposed SSA rules that attempt to regulate attorneys not involved in an actual claim or proceeding before SSA/the Commissioner. Moreover, these type of policy issuances are often a veiled attempt to indirectly cut public benefit programs by directly targeting those who assist potential claimants. Proposed agency rulemakings give attorneys in these practice areas the opportunity to advocate for their clients in additional ways. The monthly SSI benefit is insufficient to cover the needs of most disabled individuals, and because Congress has not changed the most significant of the program’s resource and income rules since 1972, special needs planning will be an ongoing and imperative need. See S. 2753 and H.R. 4280, The Supplemental Security Income Restoration Act of 2019, which propose, inter alia, to increase the individual resource limit to $10,000 and eliminate the rule of treating in-kind support as income.

The estate planner, therefore, should not give up the practice of drafting SNTs out of fear or doubt of executive agency rulemaking. Rather, the estate planning attorney is encouraged to learn the rules, adapt their practice, and to advocate for their client in new ways. See Jeffery S. Lubbers, Fail to Comment at Your Own Risk: Does Issue Exhaustion Have a Place in Judicial Review of Rules? (May 5, 2015) (report to the Admin. Conf. of the U.S.), for an interesting discussion on reviewing court treatment of “issue exhaustion”—where petitioners in lawsuits involving an agency rulemaking were barred from raising arguments on judicial appeal that were not first raised by comment during the notice-andcomment period when the rule was first proposed.

When Fee Authorization is Not Required

Before POMS GN03920.007, SSA had other policy guidance in place concerning when fee authorization is not required. A review of POMS GN 03920.010 and HALLEX I-1-2-5, “Representative’s Fees Not Subject to Social Security Administration’s (SSA) Authorization,” may provide some comfort for those who are still uncertain about the current state of fee authorization. These policy manuals clarify that proceedings before a state or federal court are not considered proceedings before SSA and therefore, are not subject to SSA fee authorization. The manuals also clarify that if a legal guardian, committee, conservator, or other state court-appointed representative obtains a court order approving a fee for services provided in connection with a proceeding before SSA/the Commissioner, then SSA does not need to authorize the attorney’s fee.

Therefore, if an attorney provides legal services through a state court proceeding, and the state court signs an order approving the attorney’s fees, then those fees are absolutely exempt from SSA’s fee authorization process, notwithstanding their link to a claim before SSA/the Commissioner. As such, SNT planning and drafting could be performed without the need for Social Security fee authorization if it is accomplished or associated with a state court proceeding. Some examples of these state court proceedings include (a) representing an applicant for guardianship of person and/or estate of a disabled individual; (b) establishing a court-created management trust under Chapter 1301 of the Texas Estates Code; (c) establishing a pooled trust subaccount under Chapter 1302 of the Texas Estates Code; or (d) modifying an existing trust to qualify a beneficiary for SSI or Medicaid under § 112.054 of the Texas Trust Code.

The Texas Estates Code and Trust Code provide multiple bases for a guardian to request attorney fees from a state court for services provided in connection with a claim for SSI benefits. Section 1155.151 of the Texas Estates Code provides a statutory basis for guardians to request reimbursement from the estate for any “necessary and reasonable expenses incurred in performing any duty as guardian, including reimbursement for the payment of reasonable attorney’s fees necessarily incurred by the guardian in connection with the management of the estate or any other matter in the guardianship.” TEX. EST. CODE § 1155.101 (emphasis added). Similarly, § 1155.102 provides for a guardian of the estate to seek reimbursement for “reasonable expenses incurred by the guardian in collecting or attempting to collect a claim . . . to which the estate has title or a claim.” TEX. EST. CODE § 1155.102 (emphasis added). Additionally, § 1151.251 of the Texas Estates Code provides for a limited guardianship for the express purpose of receiving funds from a governmental source and to “pay the expenses of administering the guardianship” (and the expenses of the ward) in an amount of up to $12,000 per year without needing further court approval. TEX. EST. CODE § 1151.251. Finally, § 114.064 of he Texas Trust Code provides for the reimbursement of attorney’s fees incurred in a judicial modification of a trust. TEX. PROP. CODE § 114.064. In sum, there is ample statutory authority for a guardian to request a probate court, or other authorized state court, to approve attorney’s fees for legal services performed in connection with a proceeding before SSA/the Commissioner, including SNT work.

Because Texas gives statutory authority for a court to create a special needs trust and approve attorney’s fees for such work, estate planners not regularly involved in special needs planning should consider adding language to the documents they draft, at the very minimum, giving trustees and executors the authority to apply for the creation of these trusts. This language could be as simple as including a clause concerning the settlor’s or testator’s intent and/or bolstering the authority of these fiduciaries to confer legal standing on them to petition the courts.

When Fee Authorization is Required and How it Works

However, if the attorney is drafting a SNT directly for a client who wants to qualify on an existing application for SSI, or the client is an SSI recipient facing overpayment liability, then such SNT work falls square within the fee authorization rule. Recall that the statute states “represented by an attorney in connection with such claim.” Drafting an SNT for the express purpose of helping a claimant become financially eligible for an existing SSI application or to maintain the claimant’s current SSI eligibility status is representation “in connection with such claim.” This is especially true if the attorney is in communication with Social Security concerning the approval/disapproval of SNT terms as in the case of a formal determination made by a field office or processing center. See HALLEX I-1-2-4, Representative’s Fees Subject to Fee Authorization. SSA requires all representatives and claimants to execute SSA Form 1696 to give the agency permission to communicate with the claimant’s attorney/representative. Part III of Form 1696 requires the representative to disclose the fee arrangement with the claimant and specifically states that SSA must authorize any fee the representative charges. The only exceptions are if a third-party entity or government agency are paying the representative and the claimant has no direct or “indirect” liability for the representative’s fee, or if the representative is waiving his or her right to a fee (pro bono). In sum, estate planners working directly with SSA concerning SNT terms, on behalf of a claimant, and independent of a state court proceeding, should be prepared to segregate their estate planning fees associated with the SNT work and seek fee authorization from SSA for this work.

Unfortunately, SSA fee authorization is a “feast or famine” (and by many accounts, mostly famine) way of practice. Under SSA’s fee authorization process, attorneys can collect an estimated fee from the claimant and deposit it to their IOLTA or other client trust/escrow account, but they cannot charge the client and pay themselves a fee until after the work is performed and SSA has actually authorized the fee. HALLEX I-1-2-8. This process can take months and, in some cases, years. Additionally, the SSA fee petition (Form SSA-1560) is a very different kind of fee petition than what most legal practitioners are accustomed to. Although attorneys are required to account for their time and tasks just as they would in a fee petition for a state court proceeding, SSA does not approve an hourly rate. Rather, the attorney submits a total fee to SSA and an agency adjudicator determines whether the fee is reasonable given the time spent and tasks involved. HALLEX I-1-2-57. Fees greater than $10,000 require two levels of review, and this extra review correspondingly increases the amount of time needed to authorize a fee.

It is advisable, however, that estate planners avoid the fee authorization whenever possible, and instead, utilize the other methods for special needs planning discussed above. There is ample statutory support and policy guidance providing for the avoidance of SSA’s fee authorization process in performing SNT work if estate planners are willing to modify their method of practice. Because these policies concerning exemptions to fee authorization have been in place within SSA for many years, a change in these policies is not expected. And if SSA ever decides to revise their longstanding policies, there will be ample opportunity for the estate planning attorney to participate in that policymaking process.

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