Special Needs Trust - Hawaii

SPECIAL NEEDS TRUST AGREEMENT

(Hawaii – Third-Party Trust; NOT Subject to the 42 U.S.C. § 1396p(d)(4)(A) Medicaid Payback Requirement)

TABLE OF CONTENTS

1. DOCUMENT HEADER
2. DEFINITIONS
3. OPERATIVE PROVISIONS
4. REPRESENTATIONS & WARRANTIES
5. COVENANTS & RESTRICTIONS
6. DEFAULT & REMEDIES
7. RISK ALLOCATION
8. DISPUTE RESOLUTION
9. GENERAL PROVISIONS
10. EXECUTION BLOCK

1. DOCUMENT HEADER

1.1 Title.
Special Needs Trust Agreement (this “Trust Agreement”).

1.2 Parties.
a. Grantor: [GRANTOR LEGAL NAME], a [individual/corporation/etc.] with principal address at [ADDRESS] (“Grantor”).
b. Trustee: [INITIAL TRUSTEE NAME], whose address is [ADDRESS] (“Trustee”).
c. Beneficiary: [BENEFICIARY NAME], Social Security No. [XXX-XX-XXXX] (“Beneficiary”).

1.3 Recitals.
A. Beneficiary is a person with a disability as defined in 42 U.S.C. § 1382c(a)(3).
B. Grantor desires to establish a third-party special needs trust for Beneficiary's sole benefit, funded exclusively with Grantor's own property, to supplement—not supplant—government benefits.
C. Because this Trust is funded exclusively with property belonging to Grantor (and not with Beneficiary's own assets), it is a third-party special needs trust and is NOT subject to the Medicaid payback requirement of 42 U.S.C. § 1396p(d)(4)(A), which applies only to trusts containing the assets of the disabled individual. This distinction is Hawaii-relevant because Hawaii is a "209(b) state," meaning Beneficiary's receipt of SSI does not automatically confer Med-QUEST (Hawaii Medicaid) eligibility; a separate Med-QUEST application is required.

D. Trustee is willing to hold, administer, and distribute the Trust Estate exclusively for Beneficiary in accordance with the terms herein.

For SSI purposes, assets of the Beneficiary's spouse are not third-party assets under SSA POMS SI 01120.200. The Trustee shall not accept them into the third-party portion of this Trust; refer any proposed contribution to benefits counsel for separate planning.

1.4 Effective Date.
This Trust Agreement is effective as of [MONTH DAY, YEAR] (the “Effective Date”).

1.5 Governing Law.
This Trust Agreement and all disputes hereunder shall be governed by and construed in accordance with the trust law of the State of Hawaii (the “Governing Law”).

2. DEFINITIONS

For convenience, the following terms (alphabetically arranged) have the meanings set forth below:

“Accounting Period” – Each calendar year ending December 31, or such other period selected by Trustee.

“Applicable Law” – All federal and Hawaii statutes, regulations, and common-law principles governing this Trust, including the Hawaii Uniform Trust Code, HRS chapter 554D. This Trust is a third-party trust funded exclusively with Grantor's own property; 42 U.S.C. § 1396p(d)(4)(A) (which governs only trusts containing the disabled beneficiary's own assets) does not apply to this Trust and is referenced herein solely to make that distinction clear.

“Beneficiary’s Supplemental Needs” – Expenses that enhance Beneficiary’s quality of life but are not basic support items counted as in-kind support and maintenance under 20 C.F.R. § 416.1130, including without limitation education, transportation, therapies, medical or dental services not covered by government benefits, entertainment, vacations, and adaptive equipment.

“Distribution Standard” – The discretionary standard set forth in Section 3.4.

“Protected Benefits” – All means-tested public assistance programs, including Medicaid (Med-QUEST in Hawaii), Supplemental Security Income (“SSI”), and Section 8 housing assistance.

“Successor Trustee” – Any person or corporate fiduciary designated or appointed under Section 3.7 to serve as Trustee following the resignation, removal, incapacity, or death of the prior Trustee.

“Trust Estate” – All property transferred to Trustee under Section 3.1, together with all future additions, investments, reinvestments, earnings, and accretions.

3. OPERATIVE PROVISIONS

3.1 Creation and Funding.

Grantor hereby irrevocably transfers to Trustee the property described in Schedule A attached hereto, to hold in trust, together with all future property added thereto, as the Trust Estate.

3.2 Purpose; Special Needs Compliance.

The primary purpose of this Trust is to provide for Beneficiary’s Supplemental Needs while preserving Beneficiary’s eligibility for Protected Benefits, in strict compliance with Applicable Law. Because this Trust is funded exclusively with Grantor's own property and holds none of Beneficiary's assets, it is a third-party special needs trust and does not fall within, and need not comply with, 42 U.S.C. § 1396p(d)(4)(A) (the first-party/self-settled special needs trust exception, which applies only to trusts containing the disabled beneficiary's own assets).

3.3 Spendthrift Protection.

The interest of Beneficiary in the Trust Estate is nonassignable and shall not be subject to pledge, anticipation, sale, attachment, garnishment, execution, or other voluntary or involuntary transfer prior to actual receipt by Beneficiary.

3.4 Distribution Standard.

a. Sole Benefit Requirement. All distributions must be for the sole benefit of Beneficiary.
b. Discretionary Distributions. Trustee, in its sole and absolute discretion, may distribute such amounts of income and/or principal as Trustee deems advisable to pay Beneficiary’s Supplemental Needs, considering:
i. The availability of Protected Benefits;
ii. The size and expected duration of the Trust Estate; and
iii. Any other resources legally available to Beneficiary.
c. Prohibited Distributions. Trustee shall not make any distribution that would:
i. Provide Beneficiary with shelter in a manner that reduces SSI (food no longer reduces SSI as in-kind support and maintenance under the Social Security Administration's final rule, 89 Fed. Reg. 21,199 (Mar. 27, 2024), eff. Sept. 30, 2024; see 20 C.F.R. § 416.1130); or
ii. Repay or reimburse Grantor, any family member, or any other third party, except as expressly allowed under Section 7.1.

3.5 Income Accumulation.

All undistributed income shall be added to principal annually and thereafter administered as principal.

3.6 Trustee Powers.

Trustee shall have all powers conferred by Hawaii common law, the specific trustee powers enumerated at HRS § 554D-816, and the federal fiduciary income tax provisions of 26 U.S.C. §§ 641–685, including without limitation to:
a. Invest and reinvest the Trust Estate pursuant to the Uniform Prudent Investor Act;
b. Employ agents, advisors, and custodians;
c. Commingle assets with other trust accounts for investment purposes; and
d. Execute all documents reasonably necessary to administer the Trust.

3.7 Trustee Succession.

a. Designated Successor Trustees. The persons listed in Schedule B shall serve, in the order named, as Successor Trustee upon the earlier of Trustee’s resignation, removal, incapacity, or death.
b. Removal. Grantor (if living) or, after Grantor’s death, a court of competent jurisdiction may remove Trustee for cause (defined as gross negligence, willful misconduct, or material breach).
c. Vacancy. If no named Successor Trustee is willing or able to serve, the Hawaii probate court for the circuit in which Beneficiary resides shall appoint a corporate fiduciary experienced in special needs trust administration.

4. REPRESENTATIONS & WARRANTIES

4.1 Grantor Representations.
a. Grantor has full legal capacity and title to transfer the property comprising the Trust Estate.
b. Grantor understands that the Trust is irrevocable and waives all right, title, and interest in the Trust Estate once transferred.

4.2 Trustee Representations.
a. Trustee is duly qualified and willing to serve.
b. Trustee is familiar with the fiduciary duties and distribution limitations applicable to special needs trusts.

4.3 Beneficiary Representations.
Beneficiary (or Beneficiary’s legal guardian) represents that Beneficiary meets the disability criteria of 42 U.S.C. § 1382c(a)(3) and is currently receiving, or is expected to receive, Protected Benefits.

4.4 Survival.
The representations and warranties herein survive execution and funding of the Trust Agreement.

5. COVENANTS & RESTRICTIONS

5.1 Grantor Covenants.
Grantor shall not take any action that would cause the Trust to be treated as a countable resource of Beneficiary.

5.2 Trustee Covenants.
a. Maintain accurate records and provide annual accountings in accordance with Section 5.3.
b. Timely file all federal and state fiduciary income tax returns.
c. Provide notice to Beneficiary and, if applicable, Beneficiary’s legal guardian of any proposal to make a distribution that may adversely affect Protected Benefits.

5.3 Accounting and Reporting.
Within 90 days after each Accounting Period, Trustee shall furnish to Beneficiary (or Beneficiary’s legal guardian) a written report detailing receipts, disbursements, and the fair market value of the Trust Estate.

5.4 Notice and Cure.
Prior to initiating any removal proceeding, the party alleging Trustee default must give written notice specifying the breach and allow a 30-day cure period.

6. DEFAULT & REMEDIES

6.1 Events of Default (Trustee).
a. Misappropriation or self-dealing;
b. Failure to provide required accounting;
c. Gross negligence or willful misconduct.

6.2 Remedies.
a. Removal and replacement of Trustee pursuant to Section 3.7(b);
b. Surcharge against Trustee’s fiduciary bond or personal assets for losses caused by breach;
c. Injunctive relief under Section 8.4.

6.3 Attorney Fees.
In any action to enforce this Trust, the prevailing party may recover reasonable attorney fees and costs, payable from the Trust Estate except where Trustee is found at fault, in which case such fees and costs shall be payable by Trustee personally.

7. RISK ALLOCATION

7.1 Indemnification of Trustee.

Trustee and its agents are indemnified from the Trust Estate against any liability, loss, or expense (including attorney fees) incurred in the administration of the Trust, except to the extent caused by Trustee’s gross negligence, willful misconduct, or material breach of fiduciary duty.

7.2 Limitation of Liability.

Trustee’s liability in any proceeding shall be limited to the value of the Trust Estate; no personal assets of Trustee shall be subject to attachment or execution beyond that limitation.

7.3 Insurance.

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

7.4 Force Majeure.

Trustee shall not be liable for delays or failure to perform caused by acts of God, governmental actions, pandemic, war, or other circumstances beyond Trustee’s reasonable control; provided, Trustee shall resume performance with reasonable dispatch upon cessation of the force-majeure event.

8. DISPUTE RESOLUTION

8.1 Governing Law.

This Trust is governed by the laws of the State of Hawaii, without regard to its conflicts-of-law rules.

8.2 Forum Selection.

Exclusive jurisdiction for all matters within the statutory probate jurisdiction of Hawaii resides in the [CIRCUIT] Circuit Court, Probate Division — the judicial circuit in which the Trust's principal place of administration is or will be located, consistent with the circuit courts' exclusive subject-matter jurisdiction over trust administration proceedings under HRS § 554D-203 and the venue rules of HRS § 554D-204.

8.3 Limited Arbitration.

Any dispute not within the exclusive jurisdiction of the probate court, and not seeking instructions regarding Trust administration, shall be resolved by binding arbitration administered by [ARBITRATION PROVIDER] under its commercial rules. The arbitrator shall have no authority to order relief inconsistent with this Trust Agreement.

8.4 Injunctive Relief.

Notwithstanding Section 8.3, any party may seek temporary, preliminary, or permanent injunctive relief from the probate court to enforce the terms of this Trust, without posting bond.

8.5 Jury Trial Waiver.

To the extent a matter is heard outside the probate court and is not subject to arbitration, the parties waive jury trial to the fullest extent permitted under Hawaii law.

9. GENERAL PROVISIONS

9.1 Amendment and Waiver.
This Trust is irrevocable. Trustee may, however, amend administrative provisions to maintain compliance with Applicable Law or to preserve Beneficiary’s Protected Benefits, with advance written notice to Beneficiary and the Hawaii Department of Human Services (“DHS”). No waiver of any provision shall be effective unless in writing and signed by the waiving party.

9.2 Assignment and Delegation.
Except as expressly allowed herein, no party may assign any right or delegate any duty without prior written consent of Trustee and, if Beneficiary is legally competent, Beneficiary.

9.3 Successors and Assigns.
This Trust Agreement binds and benefits the parties hereto and their respective successors, assigns, and legal representatives.

9.4 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 parties’ intent.

9.5 Integration.
This Trust Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements.

9.6 Counterparts; Electronic Signatures.
This Trust may be executed in one or more counterparts, each deemed an original. Signatures transmitted electronically (e.g., PDF or via a qualified e-signature platform) shall be deemed original signatures.

10. EXECUTION BLOCK

IN WITNESS WHEREOF, the parties hereto have executed this Special Needs Trust Agreement as of the Effective Date.

Acknowledgment – State of Hawaii

Schedule A – Initial Trust Property

[DESCRIBE CASH, SECURITIES, ETC.]

Schedule B – Successor Trustees

1. [NAME, ADDRESS]
2. [NAME, ADDRESS]

TERMINATION AND REMAINDER DISTRIBUTION

Upon Beneficiary’s death or earlier termination of this Trust:

a. Trustee shall first pay all allowable administrative expenses, including (i) taxes due from the Trust, and (ii) reasonable fees and costs of administration.
b. No Medicaid/Med-QUEST Payback Required. Because this Trust is funded exclusively with property belonging to Grantor (and, if applicable, other third parties) and contains no assets of Beneficiary, no reimbursement or payback is owed to the Hawaii Department of Human Services (“DHS”), Med-QUEST, Medicaid, or any other government agency upon Beneficiary's death or the Trust's earlier termination. The Medicaid payback requirement of 42 U.S.C. § 1396p(d)(4)(A) applies only to first-party (self-settled) special needs trusts funded with the disabled beneficiary's own assets, which this Trust is not.
c. After payment of the expenses described in subsection (a), the entire remaining Trust Estate shall be distributed to the remainder beneficiaries listed in Schedule C.

Schedule C – Remainder Beneficiaries

1. [NAME, RELATIONSHIP, PERCENTAGE]
2. [NAME, RELATIONSHIP, PERCENTAGE]

[END OF DOCUMENT]