Special Needs Trust - Alabama

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SPECIAL NEEDS TRUST AGREEMENT
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This Special Needs Trust Agreement (“Agreement”) is made effective as of [EFFECTIVE DATE] (the “Effective Date”), by and among:

1. [GRANTOR FULL LEGAL NAME], of [ADDRESS], acting as [BENEFICIARY / PARENT / GRANDPARENT / LEGAL GUARDIAN] of Beneficiary (“Grantor”);
2. [INITIAL TRUSTEE FULL LEGAL NAME], of [ADDRESS] (“Trustee”); and
3. [PRIMARY BENEFICIARY FULL LEGAL NAME], a person with a disability as defined herein (“Beneficiary”).

Collectively, Grantor, Trustee, and Beneficiary may be referred to as the “Parties.”

RECITALS

A. Grantor establishes this irrevocable first-party trust governed by Alabama law (the “Trust”) solely for Beneficiary. Beneficiary was born on [DATE OF BIRTH], is under age 65 when this Trust is established, and is disabled within the meaning of 42 U.S.C. § 1382c(a)(3). Grantor acts in one of the capacities allowed by 42 U.S.C. § 1396p(d)(4)(A), identified above; if a court establishes the Trust instead, Alabama counsel must adapt the execution and attach the establishing order. Schedule A identifies Beneficiary’s own assets used to fund the Trust. The purpose is to protect eligibility for means-tested benefits, including SSI and Medicaid.

B. The Trust is intended to meet the first-party exception in 42 U.S.C. § 1396p(d)(4)(A), including its beneficiary, age, disability, establishment, sole-benefit, and Medicaid reimbursement conditions. Ala. Code § 19-3B-1101 limits application of Alabama Uniform Trust Code provisions to the extent they would disqualify Beneficiary from public needs-based assistance. Qualification depends on the actual funding and administration as well as this instrument.

C. Trustee is willing to accept the duties and obligations set forth in this Agreement, subject to the terms, conditions, and protections contained herein.

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

TABLE OF CONTENTS

I. DEFINITIONS
II. OPERATIVE PROVISIONS
III. REPRESENTATIONS & WARRANTIES
IV. COVENANTS & RESTRICTIONS
V. DEFAULT & REMEDIES
VI. RISK ALLOCATION
VII. DISPUTE RESOLUTION
VIII. GENERAL PROVISIONS
IX. EXECUTION BLOCK

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I. DEFINITIONS
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For purposes of this Agreement, the following terms shall have the meanings set forth below. Terms defined in the singular include the plural and vice-versa; references to gender include all genders.

“Accountant” means a certified public accountant engaged pursuant to Section IV.C.

“Act” means 42 U.S.C. § 1396p(d)(4)(A) and its implementing regulations, as amended, together with Ala. Code § 19-3B-1101 (Alabama’s statutory protection of special needs trusts from provisions of the Alabama Uniform Trust Code that would otherwise disqualify the Beneficiary from needs-based public assistance).

“Supervising Court” means the Circuit Court of the Alabama county constituting the Trust’s principal place of administration, which has exclusive jurisdiction under Ala. Code § 19-3B-203(a) over proceedings brought by a trustee or beneficiary concerning the Trust’s administration; provided, however, that if that county is Jefferson, Mobile, Shelby, Pickens, or Houston County, the Probate Court of that county has been granted statutory equitable jurisdiction and holds concurrent jurisdiction with the Circuit Court under Ala. Code § 19-3B-203(b), and either court may serve as the Supervising Court. Alabama probate courts do not otherwise have general equitable jurisdiction over trust administration.

“Beneficiary” has the meaning assigned in the preamble and, where the context requires, includes any Successor Beneficiary designated under Section II.I.

“Disability” means a condition meeting the definition set forth in 42 U.S.C. § 1382c(a)(3).

“Distribution Committee” means the advisory body described in Section II.F, if appointed.

“Government Benefits” means any present or future means-tested or entitlement program, including without limitation SSI, Medicaid, Social Security Disability Insurance (“SSDI”), Medicare, Section 8 housing, Supplemental Nutrition Assistance Program (“SNAP”), and comparable programs.

“Income” and “Principal” have the meanings assigned in the Alabama Principal and Income Act, Ala. Code §§ 19-3A-101 et seq., as adopted in Alabama.

“Qualified Expenses” means goods and services that supplement, and do not supplant, public assistance, consistent with Section II.D.

“Remainder Beneficiary” means the person(s) or entity(ies) entitled to receive Trust assets upon termination pursuant to Section II.I.

“Special Needs” means Beneficiary’s supplemental, non-support needs that are not provided by Government Benefits, including but not limited to education, therapies, travel, recreation, and adaptive equipment.

“State” means the State of Alabama.

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II. OPERATIVE PROVISIONS
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A. Creation and Funding

1. Grantor establishes the Trust with Beneficiary’s own property listed in Schedule A and transfers that property to Trustee under Grantor’s documented authority, if Grantor acts as Beneficiary’s representative. Trustee shall accept only property belonging to Beneficiary into this first-party Trust, subject to counsel’s review of any transfer after Beneficiary reaches age 65. A third-party donor should use a separately drafted trust.
2. This Trust shall be irrevocable. No part of the Trust Estate shall be returned to Grantor except as expressly permitted by applicable law.

B. Purpose
The primary purpose of this Trust is to provide for Beneficiary’s Special Needs while preserving eligibility for Government Benefits. The Trust shall be administered so as to:

a. Supplement, and not replace, any Government Benefits;
b. Maximize Beneficiary’s quality of life; and
c. Comply with the Act and Alabama trust law.

C. Trustee’s Discretionary Authority

1. Sole and Absolute Discretion. Trustee shall have sole and absolute discretion regarding all distributions. Beneficiary shall have no right to demand or compel distributions.
2. Standard. Trustee may make distributions only for Qualified Expenses. No distribution shall be made for food, shelter, or other basic support if such distribution would reduce or eliminate Beneficiary’s Government Benefits.
3. Direct Payment to Providers. Wherever practicable, distributions shall be made directly to third-party providers of goods or services.

D. Spendthrift Protection
Beneficiary’s interest is subject to a spendthrift provision restraining voluntary and involuntary transfer to the extent enforceable under Ala. Code § 19-3B-502. This provision does not defeat claims permitted by §§ 19-3B-503 or 19-3B-505, federal law, or the Medicaid reimbursement requirement. Section 19-3B-1101 limits application of other trust-code provisions only to the extent they would disqualify Beneficiary from public needs-based assistance.

E. Reimbursement to State(s)
Upon Beneficiary’s death, Trustee shall reimburse every state Medicaid program that paid medical assistance on Beneficiary’s behalf from all amounts remaining in the Trust, up to the total assistance paid under those programs. Those programs are the first payees, subject only to the payments allowed before reimbursement in Section II.I.2.a. If the Trust terminates during Beneficiary’s lifetime, the same reimbursement priority applies before any remaining assets are used solely for Beneficiary’s benefit.

F. Distribution Committee (Optional)
Grantor may appoint a Distribution Committee of up to three persons to advise Trustee. Decisions of the Distribution Committee shall be non-binding recommendations.

G. Trustee Succession

1. Resignation. Trustee may resign upon 30 days’ written notice to Grantor (if living), Beneficiary, and the Supervising Court.
2. Removal. Grantor (if living) or a court of competent jurisdiction may remove any Trustee for cause.
3. Successor Trustee. If the office of Trustee becomes vacant, [SUCCESSOR TRUSTEE NAME] shall serve. If no named successor is able or willing, the Supervising Court shall appoint a corporate fiduciary authorized to administer special needs trusts in Alabama.

H. Trustee Powers
Trustee shall have all powers conferred by Alabama law upon trustees, including those enumerated under Ala. Code §§ 19-3B-815 and 19-3B-816 (general and specific powers of trustee), and in addition:

1. To retain, invest, and reinvest the Trust Estate in accordance with the Prudent Investor Rule, Ala. Code §§ 19-3B-901 to 19-3B-906;
2. To employ and compensate agents, attorneys, accountants, and investment advisors;
3. To compromise or settle claims;
4. To execute documents and delegate authority as permitted by law; and
5. To make elections and take any steps advisable to minimize taxes or preserve Government Benefits.

I. Termination; Remainder Beneficiaries

1. Mandatory Termination. The Trust shall terminate upon the earliest of:
   a. Beneficiary’s death;
   b. Exhaustion of the Trust Estate; or
   c. Court order.

2. Distribution Upon Termination.
   a. Before Medicaid reimbursement, Trustee may pay only taxes owed by the Trust because of Beneficiary’s death or Trust termination and reasonable fees and administrative expenses associated with terminating and winding up the Trust. Trustee shall not first pay unpaid Qualified Expenses, Beneficiary’s debts, funeral costs, or distributions to remainder beneficiaries.
   b. Trustee shall then satisfy the Medicaid reimbursement required under Section II.E.
   c. If Beneficiary has died, Trustee shall distribute any remaining balance to the following Remainder Beneficiaries in the percentages indicated. If the Trust terminates during Beneficiary’s lifetime, any balance after Medicaid reimbursement must instead be used solely for Beneficiary’s benefit.

• [NAME] – [___]%
• [NAME] – [___]%

d. If no Remainder Beneficiaries survive Beneficiary, residue shall pass to Grantor’s heirs at law per stirpes.

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III. REPRESENTATIONS & WARRANTIES
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A. Grantor

1. Authority. Grantor has full legal capacity and authority to execute this Agreement and to transfer the property comprising the Trust Estate.
2. Non-Contravention. Execution and performance of this Agreement do not violate any other agreement or legal obligation binding on Grantor.

B. Trustee

1. Qualification. Trustee is qualified and, if a corporate fiduciary, duly authorized to act as a trustee in the State.
2. Duty of Loyalty. Trustee acknowledges fiduciary duties of loyalty and care owed to Beneficiary.
3. No Conflict. Trustee’s acceptance of this trusteeship does not create a prohibited conflict of interest.

C. Survival
The representations and warranties herein shall survive execution and continue during the term of this Trust.

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IV. COVENANTS & RESTRICTIONS
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A. Accounting and Reporting

1. Annual Accounts. Trustee shall prepare an annual accounting and provide copies to Beneficiary (or Beneficiary’s legal guardian), the Supervising Court, and any other person entitled under applicable law.
2. Court Audit. Trustee shall submit to court audit as required by the Supervising Court.

B. Compliance with Government Benefit Rules
Trustee shall timely file all reports required by governmental agencies and shall take no action that would knowingly disqualify Beneficiary from Government Benefits.

C. Tax Matters
Trustee shall cause an income tax return (IRS Form 1041) to be filed annually for the Trust and shall provide any tax information statements to Beneficiary. Trustee is authorized to engage an Accountant and may pay reasonable fees from the Trust Estate.

D. Investment Policy
Trustee shall adopt a written investment policy consistent with Beneficiary’s anticipated needs, the projected duration of the Trust, and preservation of capital.

E. Notice of Material Events
Trustee shall notify Beneficiary and, if applicable, Beneficiary’s legal guardian within 30 days of (i) change in Trustee, (ii) litigation affecting the Trust, or (iii) any Government Benefit eligibility issue.

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V. DEFAULT & REMEDIES
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A. Events of Default
The following constitute Events of Default:

1. Trustee’s willful misconduct, gross negligence, or material breach of fiduciary duty;
2. Failure to account within the time required by Section IV.A;
3. Unauthorized self-dealing;
4. Failure to maintain Beneficiary’s eligibility for Government Benefits through negligence or malfeasance.

B. Cure Period
Trustee shall have 30 days after written notice to cure any Event of Default, except no cure period shall apply to willful misconduct or fraud.

C. Remedies
Upon an uncured Event of Default, any interested party may petition the Supervising Court for:

1. Removal and surcharge of Trustee;
2. Injunctive relief to prevent further harm;
3. Recovery of damages limited as provided in Section VI.B; and
4. Attorneys’ fees and costs, in the court’s discretion.

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VI. RISK ALLOCATION
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A. Indemnification of Trustee

1. Scope. The Trust Estate shall indemnify and hold Trustee harmless from and against any liability, loss, or expense (including reasonable attorneys’ fees) incurred in the administration of the Trust, except to the extent arising from Trustee’s willful misconduct, fraud, bad faith, gross negligence, or reckless indifference to the purposes of the Trust or the interests of the Beneficiary.
2. Advancement. Trustee may advance costs from the Trust Estate, subject to refund if later determined not indemnifiable.

B. Liability Cap
To the extent permitted by Ala. Code § 19-3B-1008, Trustee’s liability to all parties for claims arising out of this Agreement shall not exceed the lesser of (i) the then-existing Trust Estate or (ii) the actual loss proven. This cap does not apply to a breach committed in bad faith or with reckless indifference to the purposes of the Trust or the interests of the Beneficiary, or to an exculpatory term inserted through Trustee’s abuse of a fiduciary or confidential relationship to Grantor. It does not limit liability for willful misconduct or fraud. Where § 19-3B-1008(b) applies, a cap drafted or caused to be drafted by Trustee must satisfy its fairness and disclosure conditions.

C. Insurance
Trustee may, but is not required to, purchase fiduciary liability insurance payable from the Trust Estate.

D. Force Majeure
Trustee shall not be liable for delays or failures in performance caused by events beyond reasonable control, including changes in law, court closure, natural disasters, or systemic failure of financial institutions.

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VII. DISPUTE RESOLUTION
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A. Governing Law
This Agreement and the Trust shall be governed by and construed in accordance with the substantive laws of the State of Alabama relating to trusts, without regard to conflict-of-laws principles.

B. Forum Selection
Pursuant to Ala. Code § 19-3B-203(a), the Circuit Court of [NAME OF COUNTY], Alabama, has exclusive jurisdiction over proceedings brought by a trustee or beneficiary concerning the internal affairs or administration of the Trust; provided, however, that if [NAME OF COUNTY] is Jefferson, Mobile, Shelby, Pickens, or Houston County, the Probate Court of that county has been granted statutory equitable jurisdiction and holds concurrent jurisdiction with the Circuit Court under Ala. Code § 19-3B-203(b), and either court (the “Supervising Court”) may serve as the forum. Alabama probate courts do not otherwise have general equitable jurisdiction over trust administration.

C. Limited Arbitration

1. Scope. Any dispute that (a) does not involve interpretation of the Trust’s dispositive provisions, and (b) could be finally resolved without impinging upon the Supervising Court’s exclusive or concurrent jurisdiction, shall, at the election of any party, be submitted first to mediation and, if unresolved within 60 days, to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (“AAA”).
2. Carve-Outs. Petitions for instructions, account approval, or trustee removal shall be brought exclusively in the Supervising Court.
3. Injunctive Relief. The Supervising Court shall retain authority to issue temporary, preliminary, and permanent injunctive relief as necessary for Trust enforcement.

D. Jury Trial Waiver
To the fullest extent permitted by applicable law, the Parties waive any right to trial by jury in any proceeding arising out of or relating to this Trust; provided, however, that such waiver shall not apply in proceedings where jury trial is unavailable under probate practice.

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VIII. GENERAL PROVISIONS
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A. Amendment and Reformation

1. No Amendment by Grantor. Grantor lacks power to revoke or amend this Trust.
2. Judicial Reformation. The Supervising Court may modify or reform the Trust under Ala. Code §§ 19-3B-411, 19-3B-412, or 19-3B-415 to ensure continued qualification as a special needs trust or to address unanticipated circumstances, consistent with Grantor’s intent.

B. Severability
If any provision of this Agreement is held invalid or unenforceable, the remaining provisions shall remain in full force, and the Supervising Court may reform such provision to the minimum extent necessary to effectuate Grantor’s intent.

C. Assignment
No party may assign rights or obligations under this Agreement except as expressly provided herein or with Supervising Court approval.

D. Entire Agreement
This Agreement constitutes the entire understanding among the Parties with respect to the Trust and supersedes all prior negotiations or agreements.

E. Counterparts; Electronic Signatures
This Agreement may be executed in multiple counterparts, each deemed an original, and by electronic signature to the extent permitted by applicable law.

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IX. EXECUTION BLOCK
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IN WITNESS WHEREOF, the Parties have executed this Special Needs Trust Agreement as of the Effective Date.

GRANTOR

____________________________________
[GRANTOR NAME]
Date: _______________________________

TRUSTEE

____________________________________
[TRUSTEE NAME], Trustee
Date: _______________________________

BENEFICIARY (acknowledgment only)

____________________________________
[BENEFICIARY NAME]
Date: _______________________________

WITNESSES

1. __________________________________ Date: _______________
2. __________________________________ Date: _______________

NOTARY PUBLIC

State of Alabama )
County of [________________________________] )

On this ____ day of __________, 20__, before me, the undersigned Notary Public, personally appeared [NAME(S)], known to me (or satisfactorily proven) to be the person(s) whose name(s) is/are subscribed to the foregoing instrument, and acknowledged that he/she/they executed the same for the purposes therein contained.

____________________________________
Notary Public
My Commission Expires: ______________

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SCHEDULE A – INITIAL TRUST PROPERTY
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(List Beneficiary’s own property, its source, and the authority under which Grantor transfers it. Do not list a third party’s gift in this first-party trust.)

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END OF DOCUMENT
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