Special Needs Trust - Illinois

SPECIAL NEEDS TRUST AGREEMENT

(Illinois)

TABLE OF CONTENTS

1. Document Header
2. Recitals
3. Definitions
4. Establishment of Trust & Funding

5. Trustee Provisions
   5.1 Appointment & Acceptance
   5.2 Successor Trustee
   5.3 Bond, Compensation & Expenses

6. Purpose & Special Needs Compliance

7. Distribution Standards
8. Payback Provision — OPTIONAL
9. Spendthrift & Creditor Protection
10. Trustee Powers
11. Accounts, Records & Reports

12. Risk Allocation
    12.1 Trustee Indemnification
    12.2 Limitation of Liability

13. Tax Matters

14. Dispute Resolution
15. Amendment & Termination
16. General Provisions
17. Execution Block

1. DOCUMENT HEADER

This Special Needs Trust Agreement (the “Agreement”) is entered into as of [EFFECTIVE DATE] (the “Effective Date”) by and among:

• [SETTLOR NAME], residing at [SETTLOR ADDRESS] (the “Settlor”);
• [TRUSTEE NAME], residing at [TRUSTEE ADDRESS] (the “Trustee”); and
• [BENEFICIARY NAME], born [DOB], residing at [BENEFICIARY ADDRESS] (the “Beneficiary”).

The trust established hereby shall be known as the “[BENEFICIARY NAME] Special Needs Trust” (the “Trust”) and shall be governed by the laws of the State of Illinois (the “Situs”).

2. RECITALS

A. The Beneficiary is an individual with a disability within the meaning of 42 U.S.C. § 1382c(a)(3) and, as such, may be eligible for means-tested public benefits, including SSI and Medicaid.
B. The Settlor desires to establish and fund this Trust to supplement, not supplant, such public benefits and to enhance the Beneficiary’s quality of life.
C. The Trustee is willing to hold, administer, and distribute the Trust Estate in accordance with the terms set forth herein.

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Settlor irrevocably declares and agrees as follows:

3. DEFINITIONS

“Accounting Period” – Each calendar year ending December 31 or such other period selected by the Trustee consistent with Sections 11.1 and 11.2.

“Beneficiary” – The individual identified in Section 1 who is intended to benefit from the Trust.

“Disqualified Distribution” – Any distribution that would count as income or a resource for SSI or Medicaid purposes and jeopardize the Beneficiary’s eligibility.

“Government Benefits” – Any federal, state, or local public assistance program based on need, including SSI and Medicaid.

“Payback Provision” – The reimbursement requirement described in Section 8 (if applicable).

“Supplemental Needs” – Extras that enhance the Beneficiary’s comfort, education, recreation, and well-being but are not basic support covered by Government Benefits.

“Trust Estate” – All property, real or personal, tangible or intangible, and all income thereon, held from time to time by the Trustee under this Agreement.

“Trustee” – The person or institution then serving as trustee, including any Co-Trustee or Successor Trustee.

4. ESTABLISHMENT OF TRUST & FUNDING

4.1 Irrevocable Trust. The Settlor hereby irrevocably transfers to the Trustee the property described in Schedule A attached hereto, to be held, administered, and distributed as the Trust Estate under this Agreement.

4.2 Additional Contributions. The Trustee may accept additional property from the Settlor or any other person, subject to the Trustee’s consent and Section 6 (Special Needs Compliance).

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

4.3 Separate Accounts. The Trustee may maintain segregated accounts within the Trust Estate if required to track contributions for tax or benefit-planning purposes.

5. TRUSTEE PROVISIONS

5.1 Appointment & Acceptance

The Trustee accepts the Trust and agrees to act in accordance with this Agreement and the Illinois Trust Code.

5.2 Successor Trustee

(a) [NAME OR METHOD FOR APPOINTMENT] shall serve as first Successor Trustee upon the written resignation, incapacity, or removal of the acting Trustee.
(b) Any Successor Trustee shall assume office by executing an acceptance instrument and filing it with the Trust records.
(c) No court appointment is required unless otherwise mandated by law.

5.3 Bond, Compensation & Expenses

(a) Bond. No bond shall be required unless ordered by a court of competent jurisdiction.
(b) Compensation. The Trustee shall be entitled to reasonable compensation in accordance with Illinois law and industry standards.
(c) Expenses. The Trustee is entitled to reimbursement from the Trust Estate for all reasonable and necessary expenses incurred in administration.

6. PURPOSE & SPECIAL NEEDS COMPLIANCE

6.1 Primary Purpose. The Trust is intended to provide for the Beneficiary’s Supplemental Needs while preserving eligibility for Government Benefits.

6.2 Non-Support Trust. No part of the Trust Estate shall be used for the Beneficiary’s basic support, maintenance, or other needs that public benefits or other resources are intended to cover, unless the Trustee determines that such distribution is in the Beneficiary’s best interest and after considering all consequences to Government Benefits.

6.3 Trustee’s Discretion Paramount. All distributions are wholly within the Trustee’s sole and absolute discretion; the Beneficiary shall have no right to compel distributions.

6.4 Intent to Qualify. For self-settled trusts, the parties intend that this Trust meet the requirements of 42 U.S.C. § 1396p(d)(4)(A). [If the Trust is a third-party SNT, delete reference and Section 8.]

7. DISTRIBUTION STANDARDS

7.1 Guidelines. Subject to Section 6, the Trustee may pay for or provide goods and services that, in the Trustee’s judgment, will enhance the Beneficiary’s comfort, happiness, and welfare, including but not limited to:
a. Medical, dental, and therapeutic services not covered by Government Benefits;
b. Education, vocational training, and assistive technology;
c. Transportation, including adapted vehicles;
d. Recreational and cultural experiences;
e. Personal care attendants and companion services; and
f. Modifications to residence for accessibility.

7.2 Disbursement Methods. Whenever feasible, the Trustee shall make payments directly to providers of goods or services to avoid the Beneficiary’s receipt of countable income.

7.3 Emergency Support. The Trustee may, after balancing competing considerations, make distributions for basic support if necessary to avoid a serious threat to the Beneficiary’s health or safety, notwithstanding potential benefit reduction.

7.4 Prohibited Distributions. The Trustee shall not:
a. Provide cash directly to the Beneficiary except for minimal, irregular amounts permitted by SSI rules;
b. Pay rent or utilities unless carefully structured to minimize in-kind support and maintenance (ISM) penalties; or
c. Permit the Beneficiary to assign or anticipate Trust assets.

8. PAYBACK PROVISION — OPTIONAL

[INCLUDE ONLY FOR SELF-SETTLED TRUSTS OR WHEN REQUIRED BY COURT ORDER]

Upon the death of the Beneficiary, and after payment of any outstanding qualified expenses, the Trustee shall reimburse each state that has provided medical assistance to the Beneficiary under a state Medicaid plan, up to the total amount of such medical assistance paid on the Beneficiary’s behalf, to the extent then required by 42 U.S.C. § 1396p(d)(4)(A). Any remaining balance shall be distributed to [REMAINDER BENEFICIARIES / SETTLOR’S ESTATE] as set forth in Schedule B.

9. SPENDTHRIFT & CREDITOR PROTECTION

9.1 Spendthrift Provision. The Trust is a spendthrift trust within the meaning of 760 ILCS 3/502. No interest in the Trust Estate shall be subject to voluntary or involuntary transfer, assignment, pledge, seizure, or legal process until actually received by the Beneficiary, subject only to the limited exceptions set forth in 760 ILCS 3/503 (e.g., certain child-support judgment creditors and claims of this State or the United States to the extent a statute so provides).

9.2 Illinois Statutory Protection for Disability Trusts. To the extent this Trust is a third-party, discretionary trust for the benefit of the Beneficiary (i.e., not created with, and not funded by, the Beneficiary's own property), the Trust Estate is intended to qualify for the protection of 760 ILCS 3/509(b), under which such a discretionary trust for an individual with a disability is not liable to pay or reimburse the State of Illinois or any public agency for financial aid or services furnished to the Beneficiary, except to the extent the Trust was created by the Beneficiary or Trust property has been distributed directly to, or is otherwise under the control of, the Beneficiary. If the Trust is instead self-settled (funded with the Beneficiary's own assets), Section 8 (Payback Provision) applies and 760 ILCS 3/509(b)'s exception for self-settled trusts controls, requiring compliance with the Medicaid reimbursement requirements of 42 U.S.C. § 1396p(d)(4)(A).

10. TRUSTEE POWERS

The Trustee shall have, in addition to all powers granted under the Illinois Trust Code (760 ILCS 3/815 (general powers) and 3/816 (specific powers)), the following powers, to be exercised in a fiduciary capacity and consistent with the Trust’s purpose:

a. Invest and reinvest assets pursuant to the Illinois Prudent Investor Law (760 ILCS 3/901 et seq.);
b. Lease, exchange, or sell Trust property;
c. Employ and compensate agents, attorneys, or advisors;
d. Execute documents and act through nominees;
e. Make elections under federal or state tax law;
f. Compromise claims;
g. Delegate investment functions as permitted by law; and
h. Do all acts necessary or advisable for proper administration.

11. ACCOUNTS, RECORDS & REPORTS

11.1 Accountings. The Trustee shall maintain complete records and, consistent with the Trustee's duty to inform and account under 760 ILCS 3/813.1 (for a Trust becoming irrevocable, or a Trustee accepting appointment, on or after January 1, 2020) or 760 ILCS 3/813.2 (if the Trust became irrevocable before that date), provide accountings to the Beneficiary (or the Beneficiary’s guardian) and, upon written request, to any state Medicaid agency with a legally enforceable right to such accountings.

11.2 Court Supervision. Unless otherwise required by Illinois law or ordered by a court, the Trust shall be free from active court supervision.

11.3 Tax Returns. The Trustee shall file all required federal, state, and local tax returns.

12. RISK ALLOCATION

12.1 Trustee Indemnification

Consistent with the Trustee's statutory right to reimbursement of expenses under 760 ILCS 3/709, the Trust Estate shall indemnify and hold harmless the Trustee from any liability, loss, or expense (including reasonable attorneys’ fees) arising from administration of the Trust, except for acts or omissions involving willful misconduct or gross negligence. This indemnification is an exculpatory term subject to the statutory limits of 760 ILCS 3/1008, and is unenforceable to the extent it purports to relieve the Trustee of liability for a breach of trust committed in bad faith or with reckless indifference to the purposes of the Trust or the interests of the Beneficiary, or to the extent inserted as a result of the Trustee's abuse of a fiduciary or confidential relationship with the Settlor.

12.2 Limitation of Liability

Liability of the Trustee is limited to the assets of the Trust Estate; no personal assets of the Trustee shall be subject to claims relating to the Trust.

13. TAX MATTERS

13.1 Grantor vs. Nongrantor Trust. [SELECT ONE] The Trust shall be treated as a (a) grantor trust under Subpart E, Part I, Subchapter J of the Internal Revenue Code, with the Settlor taxed on all income; OR (b) nongrantor trust filing its own fiduciary income tax returns.

13.2 EIN & Withholding. The Trustee shall obtain an Employer Identification Number and comply with all backup-withholding requirements.

13.3 GST Exemption. [OPTIONAL] The Settlor hereby allocates Generation-Skipping Transfer (“GST”) tax exemption to contributions made to this Trust to the fullest extent permitted by law.

14. DISPUTE RESOLUTION

14.1 Governing Law. This Agreement and all rights and duties hereunder are governed by the laws of the State of Illinois, without regard to conflict-of-laws principles.

14.2 Forum Selection. Any proceeding concerning the construction, administration, or enforcement of this Trust shall be filed exclusively in the Probate Division of the Circuit Court of [COUNTY], Illinois.

14.3 Limited Arbitration. Notwithstanding Section 14.2, disputes solely between current or former Trustees regarding administration shall, at the election of any Trustee, be resolved by confidential arbitration administered by [ARBITRATION BODY], seated in [CITY, IL], under its commercial arbitration rules. The Probate Court shall retain concurrent jurisdiction for injunctive relief.

14.4 Injunctive Relief. Nothing in this Section shall impair any party’s right to seek equitable relief, including injunctions or specific performance, from the Probate Court to enforce the terms of this Trust.

14.5 Jury Waiver. Consistent with trust-law practice and the equity jurisdiction of the Probate Court, the parties waive any right to trial by jury.

15. AMENDMENT & TERMINATION

15.1 Amendment by Court. The Trust may be amended by a court of competent jurisdiction upon petition by the Trustee or other interested party to conform with changes in applicable law or to better effectuate the Trust’s purpose, provided such amendment does not jeopardize Government Benefits.

15.2 Termination. The Trust shall terminate upon the earliest of:
a. The death of the Beneficiary (subject to Section 8, if applicable);
b. Depletion of the Trust Estate; or
c. Court-ordered termination.

15.3 Residual Distribution. Upon termination, remaining assets shall be distributed in accordance with Section 8 or, absent a Payback Provision, to the remainder beneficiaries listed in Schedule B.

16. GENERAL PROVISIONS

16.1 No Merger. If the Beneficiary becomes the sole Trustee, the Trust shall not merge; the Trust Estate shall continue to be held subject to all protective provisions herein.

16.2 Severability. Any provision held invalid or unenforceable shall be reformed to the minimum extent necessary to achieve the original intent, and the remaining provisions shall remain in full force.

16.3 Integration. This Agreement constitutes the entire agreement of the parties regarding the subject matter and supersedes all prior understandings.

16.4 Headings. Section headings are for convenience only and do not affect interpretation.

16.5 Counterparts & Electronic Signatures. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Signatures delivered by electronic means shall be deemed valid and binding to the fullest extent permitted by law.

17. EXECUTION BLOCK

IN WITNESS WHEREOF, the Settlor and Trustee have executed this Special Needs Trust Agreement as of the Effective Date.

[OPTIONAL: Co-Trustee Signature Block]

ACKNOWLEDGMENT (Illinois Notarization — 5 ILCS 312/6-105 Statutory Short Forms)

Settlor's Acknowledgment (individual capacity — 5 ILCS 312/6-105(a)):

State of Illinois
County of _______

This instrument was acknowledged before me on __________(date) by [SETTLOR NAME].

__________________________________
(Signature of Notary Public)
My Commission Expires: ____________

Trustee's Acknowledgment (representative capacity — 5 ILCS 312/6-105(b)):

State of Illinois
County of _______

This instrument was acknowledged before me on __________(date) by [TRUSTEE NAME] as Trustee of this Special Needs Trust.

__________________________________
(Signature of Notary Public)
My Commission Expires: ____________

SCHEDULE A

Initial Trust Property
[Describe cash, securities, or other property transferred.]

SCHEDULE B

Remainder Beneficiaries
[Identify individuals or charities and respective percentages.]

SOURCES AND REFERENCES

• 760 ILCS 3/502 — Spendthrift provision (Illinois Trust Code, effective Jan. 1, 2020)
• 760 ILCS 3/503 — Exceptions to spendthrift provision
• 760 ILCS 3/509(b) — Discretionary trust for individual with a disability; not liable to reimburse the State except a self-settled trust complying with Medicaid reimbursement requirements
• 760 ILCS 3/709 — Reimbursement of trustee's expenses
• 760 ILCS 3/813.1 — Duty to inform and account (trusts irrevocable after Jan. 1, 2020)
• 760 ILCS 3/813.2 — Duty to inform and account (trusts irrevocable before Jan. 1, 2020)
• 760 ILCS 3/815, 3/816 — General and specific powers of trustee
• 760 ILCS 3/901 et seq. — Illinois Prudent Investor Law
• 760 ILCS 3/1008 — Exculpation of trustee; statutory limits on exculpatory terms
• 42 U.S.C. § 1396p(d)(4)(A) — Self-settled ("first-party") special needs trust; Medicaid payback requirement
• 42 U.S.C. § 1382c(a)(3) — Definition of disability for SSI purposes

This template must be reviewed and customized by a qualified Illinois attorney before use. Confirm whether the Trust is self-settled (first-party) or third-party before finalizing Sections 6.4 and 8 — the Medicaid payback obligation under 42 U.S.C. § 1396p(d)(4)(A) applies only to self-settled trusts. Verify no intervening amendments to the Illinois Trust Code (760 ILCS 3/) or 42 U.S.C. § 1396p before use.