SPECIAL NEEDS TRUST AGREEMENT
(Arizona – Draft Template)
[// GUIDANCE: This template is designed as a third-party “supplemental needs” trust. If you intend to create a first-party (self-settled) trust funded with the Beneficiary’s own assets, insert the required Medicaid “payback” clause at § 7.3 and confirm compliance with 42 U.S.C. § 1396p(d)(4)(A).]
TABLE OF CONTENTS
- Article I – Document Header & Recitals
- Article II – Definitions
- Article III – Trust Creation, Funding & Irrevocability
- Article IV – Purpose; Distribution Standards
- Article V – Trustee Provisions
- Article VI – Beneficiary Rights & Spendthrift Protection
- Article VII – Termination & Remainder Beneficiaries
- Article VIII – Risk Allocation & Indemnification
- Article IX – Dispute Resolution
- Article X – General Provisions
- Article XI – Execution Block
ARTICLE I
DOCUMENT HEADER & RECITALS
1.1 Title. This instrument shall be known as the [NAME OF BENEFICIARY] SPECIAL NEEDS TRUST (the “Trust”).
1.2 Parties.
(a) Settlor: [SETTLOR FULL LEGAL NAME], residing at [ADDRESS].
(b) Trustee: [TRUSTEE FULL LEGAL NAME], residing at/with principal place of business at [ADDRESS].
(c) Primary Beneficiary: [NAME OF BENEFICIARY] (the “Beneficiary”), date of birth [DOB], Social Security No. [SSN, last 4].
1.3 Effective Date. This Trust is executed and becomes effective as of [EFFECTIVE DATE] (the “Effective Date”).
1.4 Governing Law & Jurisdiction. This Trust shall be governed by and construed in accordance with the laws of the State of Arizona, including A.R.S. Title 14, Chapters 5 and 11 (collectively, the “Arizona Trust Code”), without regard to its conflict-of-laws rules.
1.5 Consideration & Intent. The Settlor desires to set aside certain property, identified in Schedule “A” attached hereto, for the sole benefit of the Beneficiary, intending to supplement and not supplant any means-tested government benefits to which the Beneficiary is or may become entitled.
ARTICLE II
DEFINITIONS
For ease of reference, capitalized terms have the meanings set forth below.
“Act” means the federal Medicaid statute, 42 U.S.C. § 1396p(d), and related regulations, as amended.
“Administrative Trustee” means any individual or corporate fiduciary appointed solely to perform administrative functions under § 5.1(b).
“Arizona Probate Court” means the Superior Court of Arizona sitting in probate/trust jurisdiction for the county in which this Trust is administered.
“Code” means the Internal Revenue Code of 1986, as amended.
“Disabled” or “Disability” has the meaning assigned in 42 U.S.C. § 1382c(a)(3).
“Distribution for Supplemental Needs” means a distribution that does not constitute “income” or “support and maintenance” for Supplemental Security Income (“SSI”) or Medicaid eligibility purposes, including but not limited to expenditures for education, therapies, adaptive equipment, recreation, transportation, legal services, insurance, and other goods or services enhancing quality of life.
“Means-Tested Government Benefits” means SSI, Medicaid (AHCCCS in Arizona), Section 8 housing, SNAP, and any comparable federal, state, or local program conditioned upon financial need.
“Permissible Distributee” means the Beneficiary during lifetime and the Remainder Beneficiaries upon termination.
“Qualified Disability Expense” (or “QDE”) has the meaning set forth in 26 U.S.C. § 529A(e)(5).
“Trust Assets” means all property, real or personal, tangible or intangible, now or hereafter transferred to or acquired by the Trust, and all income therefrom.
ARTICLE III
TRUST CREATION, FUNDING & IRREVOCABILITY
3.1 Creation. The Settlor hereby irrevocably assigns, transfers, and conveys to the Trustee the property described in Schedule “A,” to have and to hold in trust upon the terms herein stated.
3.2 Additional Contributions. The Settlor, and any other person with the Trustee’s consent, may from time to time transfer additional property to the Trust, provided that (i) such property is not owned by the Beneficiary and (ii) the contributor signs an instrument adopting the terms of this Trust.
3.3 Irrevocability. This Trust is irrevocable; the Settlor expressly waives any power to alter, amend, revoke, or terminate the Trust except as provided in § 10.2.
3.4 Separate Trust Estate. Trust Assets shall be held, managed, and disposed of as a separate trust estate, not commingled with assets of the Trustee or any other person.
ARTICLE IV
PURPOSE; DISTRIBUTION STANDARDS
4.1 Supplemental Purpose. The primary purpose of this Trust is to provide for the Beneficiary’s Supplemental Needs above and beyond basic support, maintenance, food, and shelter, thereby preserving eligibility for Means-Tested Government Benefits.
4.2 Sole Benefit Requirement. All distributions during the Beneficiary’s lifetime must be for the sole benefit of the Beneficiary.
4.3 Trustee’s Absolute Discretion. Subject to § 4.4, the Trustee may (but is not required to) make distributions for the Beneficiary’s Supplemental Needs in the Trustee’s sole, absolute, and unfettered discretion. No distribution shall be made that would (i) constitute countable income or resources for SSI/Medicaid or (ii) otherwise diminish Means-Tested Government Benefits, unless the Trustee, after consulting with qualified benefits counsel, determines that the overall benefit to the Beneficiary outweighs the potential loss or reduction.
4.4 Prohibited Distributions. Unless the Trustee receives prior written approval from the Beneficiary’s benefits caseworker(s) or competent legal counsel:
(a) No distribution shall be made directly to the Beneficiary in cash.
(b) No distribution shall be made for food or shelter that would be deemed in-kind support and maintenance reducing SSI.
(c) No distribution shall reimburse the Settlor or any other person for obligations of support.
[// GUIDANCE: Modify § 4.4(b) if the Beneficiary is not receiving SSI.]
4.5 Discretionary Management of Income. Any income not distributed shall be added to principal.
4.6 Spendthrift & Non-Assignment. See § 6.2.
ARTICLE V
TRUSTEE PROVISIONS
5.1 Trusteeship.
(a) Initial Trustee. [TRUSTEE NAME] accepts appointment and agrees to administer the Trust.
(b) Administrative Trustee. The Trustee may appoint an Administrative Trustee or agent to handle tax filings, investment management, or specialized disability services.
5.2 Successor Trustee. If the Trustee resigns, dies, becomes incapacitated, or is removed, [NAME ORDER OF SUCCESSORS] shall serve, or if none, a successor shall be appointed by the Arizona Probate Court.
5.3 Removal & Resignation.
(a) The Settlor (if living and competent) or a competent adult Beneficiary may, without cause, remove any Trustee by written notice.
(b) A Trustee may resign upon 30 days’ written notice to the Settlor (if living), the Beneficiary, and any co-trustee.
5.4 Trustee Powers. In addition to powers under A.R.S. § 14-10818 and the common law, the Trustee may:
1. Invest and reinvest without restriction to statutory “legal lists”;
2. Employ professionals, including care managers and benefits specialists;
3. Create and fund ABLE accounts (§ 529A) for the Beneficiary;
4. Join pooled-trust sub-accounts or cooperative purchasing programs;
5. Contest or appeal adverse benefits determinations;
6. Execute arbitration agreements under § 9.3.
5.5 Trustee Duties.
(a) Fiduciary Standard. The Trustee shall administer the Trust solely in the interests of the Beneficiary.
(b) Recordkeeping & Accounts. At least annually, the Trustee shall furnish a statement of receipts, disbursements, and assets to (i) the Beneficiary or guardian, and (ii) any State Medicaid agency upon request.
(c) Tax Returns. The Trustee shall file IRS Form 1041 and relevant state returns unless the Trust qualifies as a “qualified disability trust.”
5.6 Bond. [REQUIRED / WAIVED]. If required, the bond shall not exceed [AMOUNT] and may be paid from Trust Assets.
ARTICLE VI
BENEFICIARY RIGHTS & SPENDTHRIFT PROTECTION
6.1 No Mandatory Distributions. The Beneficiary has no right to compel distributions or to assign, anticipate, pledge, or encumber any interest in this Trust.
6.2 Spendthrift Clause. To the maximum extent permitted by A.R.S. § 14-10502 and other applicable law, the Beneficiary’s interest shall be free from creditors’ claims, governmental claims (except as expressly provided in § 7.3), and legal process.
6.3 No Support Trust. This Trust is not a support trust; the Beneficiary’s basic maintenance remains the responsibility of other persons or programs, and no court shall reform this instrument into a support trust.
ARTICLE VII
TERMINATION & REMAINDER BENEFICIARIES
7.1 Termination Events. The Trust shall terminate upon the earliest of:
(a) The Beneficiary’s death;
(b) Complete depletion of Trust Assets;
(c) A final judicial determination that continuation is impracticable; or
(d) The Trustee’s written determination that continued administration would disqualify the Beneficiary from crucial benefits and no alternative exists.
7.2 Distribution Upon Termination (Third-Party Trust). Upon termination, the Trustee shall distribute remaining principal and accrued income to the following Remainder Beneficiaries, per stirpes, free of trust:
1. [NAME] – [RELATIONSHIP];
2. [NAME];
3. In default, to the Settlor’s then-living descendants, per stirpes.
7.3 OPTIONAL MEDICAID PAYBACK (First-Party Trust).
[PAYBACK PROVISION – DELETE IF NOT APPLICABLE]
“Prior to any distribution under § 7.2, the Trustee shall reimburse, up to the total amount remaining in the Trust, the Arizona Health Care Cost Containment System (“AHCCCS”) or any other State Medicaid agency for correctly-paid medical assistance, consistent with 42 U.S.C. § 1396p(d)(4)(A).”
7.4 Final Accounting. Before final distribution, the Trustee shall provide a full accounting to the Arizona Probate Court and all distributees, subject to court approval or beneficiary waiver.
ARTICLE VIII
RISK ALLOCATION & INDEMNIFICATION
8.1 Trustee Indemnification. The Trustee and each Successor Trustee (collectively, “Indemnified Parties”) shall be indemnified and held harmless out of the Trust Assets against any and all claims, liabilities, losses, damages, and expenses, including reasonable attorneys’ fees, incurred by reason of any act or omission within the scope of fiduciary duties, except for willful misconduct or gross negligence.
8.2 Limitation of Liability. Liability of the Trustee to the Beneficiary or any third party shall be limited to the Trust Assets; no personal liability shall attach.
8.3 Insurance. The Trustee may purchase fiduciary liability insurance at Trust expense.
8.4 Force Majeure. No Indemnified Party shall be liable for failure to act occasioned by events beyond reasonable control, including changes in benefits law or governmental shutdowns, provided diligent efforts are made to mitigate adverse impact on the Beneficiary.
ARTICLE IX
DISPUTE RESOLUTION
9.1 Governing Law. See § 1.4.
9.2 Forum Selection. Exclusive jurisdiction and venue for any proceeding arising under this Trust shall lie in the Arizona Probate Court for [COUNTY], and the parties consent to personal jurisdiction therein.
9.3 Limited Arbitration. Any dispute solely between Trustees, or between a Trustee and a third-party service provider, that does not affect the Beneficiary’s eligibility for Means-Tested Government Benefits, shall be resolved by binding arbitration under the Commercial Rules of the American Arbitration Association. Injunctive or declaratory relief affecting benefit eligibility remains within the exclusive jurisdiction of the Arizona Probate Court.
9.4 Injunctive Relief. Notwithstanding § 9.3, the Probate Court may issue temporary, preliminary, or permanent injunctive relief to enforce this Trust, preserve assets, or protect benefit eligibility.
9.5 No Jury Trial (Probate Context). All matters shall be decided by the court sitting without a jury, absent an express statutory right to jury trial under Arizona trust law.
ARTICLE X
GENERAL PROVISIONS
10.1 Amendment & Reformation.
(a) Amendment. The Settlor reserves no power to amend. The Trustee may, however, seek court approval to amend solely to maintain benefit eligibility or tax advantages, provided the amendment is consistent with the Trust’s primary purpose.
(b) Reformation. The Probate Court may reform this Trust to comply with statutory changes or government benefit rules, while preserving the Settlor’s intent.
10.2 Severability. If any provision is held invalid or unenforceable, the remaining provisions shall remain in full force, and the invalid provision shall be reformed to the minimum extent necessary to effectuate the Settlor’s intent and maintain compliance with law.
10.3 Assignment & Delegation. No party may assign rights or delegate duties except as expressly provided herein.
10.4 Successors & Assigns. This Trust shall be binding upon and inure to the benefit of the parties and their lawful successors.
10.5 Integration. This instrument, together with Schedule “A” and any subsequently executed joinder agreements, constitutes the entire agreement regarding the subject matter and supersedes all prior understandings.
10.6 Counterparts; Electronic Signatures. This Trust may be executed in multiple counterparts, each of which shall be deemed an original. Signatures transmitted via facsimile, PDF, or compliant electronic signature platform shall be binding.
ARTICLE XI
EXECUTION BLOCK
IN WITNESS WHEREOF, the parties have executed this Special Needs Trust Agreement as of the Effective Date.
| Settlor | |
|---|---|
| ________ | |
| [SETTLOR NAME] |
| Trustee | |
|---|---|
| ________ | |
| [TRUSTEE NAME], Trustee |
NOTARY ACKNOWLEDGMENT (Arizona)
State of Arizona )
County of _ ) ss.
On this ___ day of _, 20_, before me, ____, a Notary Public in and for said State, personally appeared [SETTLOR NAME] and [TRUSTEE NAME], known to me (or satisfactorily proven) to be the persons whose names are subscribed to this instrument, and acknowledged that they executed the same for the purposes herein contained.
Notary Public
My Commission Expires: _______
SCHEDULE “A”
INITIAL TRUST PROPERTY
- Cash: $[AMOUNT] deposited to account #[ACCOUNT NO.] at [BANK].
- [LIST SECURITIES / LIFE INSURANCE POLICY / REAL PROPERTY].
[// GUIDANCE: Attach separate deeds, assignments, or beneficiary designations as needed to complete funding.]
[OPTIONAL] PROFESSIONAL ADVISOR SIGN-OFF
The undersigned attorney has reviewed this instrument solely for compliance with Arizona trust law and federal special-needs requirements, without undertaking tax or investment advice.
[ATTORNEY NAME], Esq.
Date: _____
[// GUIDANCE: Prior to implementation, (i) register the Trust’s EIN with the IRS, (ii) retitle accounts, and (iii) file any required notices with AHCCCS pursuant to A.R.S. § 36-2934.]