SPECIAL NEEDS TRUST AGREEMENT
(Michigan Irrevocable Third-Party Supplemental Needs Trust)
[// GUIDANCE: This template is drafted as an irrevocable third-party special needs trust.
If a self-settled (42 U.S.C. § 1396p(d)(4)(A)) pay-back trust is required, insert the applicable Medicaid reimbursement language in § 3.06(B) and modify definitions accordingly.]
TABLE OF CONTENTS
1. Document Header...............................................2
2. Definitions...................................................3
3. Operative Provisions..........................................5
4. Representations & Warranties..................................9
5. Covenants & Restrictions.....................................10
6. Default & Remedies...........................................11
7. Risk Allocation..............................................12
8. Dispute Resolution...........................................13
9. General Provisions...........................................14
10. Execution Block.............................................16
1. DOCUMENT HEADER
1.01 Parties
This Special Needs Trust Agreement (the “Agreement”) is made and entered into on [EFFECTIVE DATE] (the “Effective Date”) by and between:
• Settlor: [SETTLOR FULL LEGAL NAME], an individual residing at [ADDRESS] (“Settlor”);
• Initial Trustee: [TRUSTEE FULL LEGAL NAME], residing at [ADDRESS] (“Trustee”); and
• Beneficiary: [BENEFICIARY FULL LEGAL NAME], born [DOB], currently residing at [ADDRESS] (“Beneficiary”).
1.02 Recitals
A. Settlor desires to provide for the Beneficiary, who has a medically determined disability expected to be of long-continued duration (“Special Needs”), while preserving Beneficiary’s eligibility for means-tested governmental assistance programs (“Government Benefits”).
B. Settlor’s intent is to establish an irrevocable supplemental needs trust under Michigan law, MCL 700.7101 et seq. (“Michigan Trust Code”), to hold assets for the Beneficiary’s sole benefit without constituting countable resources.
C. Trustee has agreed to serve pursuant to the terms herein.
NOW, THEREFORE, Settlor, Trustee, and Beneficiary agree as follows:
2. DEFINITIONS
For ease of reference, capitalized terms have the meanings set forth below. Any term used and not defined herein has the meaning assigned under the Michigan Trust Code.
“Accountant” – A certified public accountant engaged pursuant to § 5.04.
“Advisor” – Any attorney, accountant, care manager, or benefits specialist retained under § 5.02.
“Arbitrable Matter” – Any non-distribution administrative dispute expressly designated in § 8.03.
“Beneficiary” – As identified in § 1.01, including any court-appointed guardian or legal representative acting for the Beneficiary.
“Countable Resource” – Any asset attributable to Beneficiary under rules governing SSI, Medicaid, SNAP, or other Government Benefits.
“Distribution Committee” – If appointed under § 3.05(C), the committee advising Trustee on supplemental disbursements.
“Government Benefits” – Supplemental Security Income (“SSI”), Medicaid, and any similar federal, state, or local means-tested program.
“Person with Special Needs” – An individual who meets the disability criteria of 42 U.S.C. § 1382c(a)(3).
“Supplemental Distribution” – A payment or in-kind benefit described in § 3.04(A) that enhances Beneficiary’s quality of life without disqualifying Government Benefits.
“Trust” or “Trust Estate” – All property transferred to the Trustee, together with all additions, accumulations, and substitutions thereof.
“Trust Protector” – The person, if any, appointed under § 5.03 with the powers therein.
3. OPERATIVE PROVISIONS
3.01 Creation and Irrevocability
Settlor hereby irrevocably transfers to Trustee the property described in Schedule A, and Trustee accepts such property to hold, administer, and distribute under this Agreement. Except as expressly provided in § 9.01(B), this Trust is irrevocable and may not be revoked or terminated by Settlor or Beneficiary.
3.02 Purpose
The primary purpose of this Trust is to provide Beneficiary with Supplemental Distributions that do not supplant but rather supplement Government Benefits, thereby maximizing Beneficiary’s comfort, welfare, and dignity.
3.03 Spendthrift Protection
The interest of Beneficiary is for personal support and is not subject to voluntary or involuntary transfer, assignment, pledge, or seizure by creditors, to the maximum extent permitted by MCL 700.7502.
3.04 Distribution Standards
A. Supplemental Distributions. Trustee may, in sole and absolute discretion, make distributions for:
1. Medical, dental, vision, and therapeutic services not otherwise covered;
2. Education, training, and vocational rehabilitation;
3. Recreational, cultural, or religious activities;
4. Transportation, adaptive equipment, and technological aids;
5. Personal care attendants, housing modifications, and similar supports; and
6. Any other item reasonably related to Beneficiary’s quality of life.
B. Prohibited Distributions. Trustee shall not make any distribution that Trustee reasonably determines would:
1. Constitute a Countable Resource;
2. Impair or jeopardize Beneficiary’s eligibility for Government Benefits; or
3. Pay for food or shelter unless Trustee first confirms offsetting strategies (e.g., ISP budgeting) and documents same.
C. Emergency Distributions. If no other resources are available to meet Beneficiary’s health or safety needs, Trustee may make distributions otherwise prohibited, provided Trustee first consults with an Advisor experienced in public benefits.
3.05 Administrative Mechanics
A. Consultation Obligation. Before any material distribution, Trustee shall consult with a qualified benefits specialist to confirm compliance with current eligibility rules.
B. Documentation. Trustee shall document each distribution decision in writing, including its anticipated impact on Government Benefits.
C. Distribution Committee (Optional). Settlor may, by instrument in writing delivered to Trustee, establish a Distribution Committee comprising [NUMBER] individuals to advise Trustee; all final authority remains with Trustee.
3.06 Termination
A. Event of Termination. This Trust shall terminate upon the earliest of:
1. Beneficiary’s death;
2. Written determination by Trustee and Trust Protector that continuation is economically impracticable (Trust Estate <$[THRESHOLD]); or
3. Court order.
B. Disposition of Remainder. Upon termination:
1. First, pay outstanding qualified expenses of the Trust and any taxes lawfully due;
2. Second, if this Trust is converted to a pay-back trust, reimburse Medicaid to the extent required by 42 U.S.C. § 1396p(b); [// GUIDANCE: Delete if third-party trust.]
3. Third, distribute the remaining Trust Estate to the following remainder beneficiaries, per stirpes: [REMAINDER BENEFICIARY NAMES].
4. REPRESENTATIONS & WARRANTIES
4.01 Settlor
A. Authority. Settlor has full legal capacity to execute this Agreement and transfer property to the Trust.
B. No Contravention. Execution, delivery, and performance do not violate any other instrument or court order binding on Settlor.
4.02 Trustee
A. Qualification. Trustee is qualified to act as trustee in Michigan and has accepted fiduciary duties herein.
B. Duty of Care. Trustee shall administer the Trust with the same degree of care and prudence as a professional fiduciary knowledgeable in special needs planning.
C. Reliance on Advice. Trustee may rely in good faith on advice of Advisors selected with reasonable care.
5. COVENANTS & RESTRICTIONS
5.01 Affirmative Covenants
A. Recordkeeping. Trustee shall maintain complete and accurate books and records and furnish annual accountings to Settlor (if living), Beneficiary’s legal representative, and any court having jurisdiction.
B. Tax Compliance. Trustee shall timely file all required fiduciary tax returns and pay taxes from the Trust Estate.
C. Insurance. Trustee shall maintain appropriate liability insurance covering Trustee’s administration of the Trust.
5.02 Retention of Advisors
Trustee may engage Advisors as deemed advisable, compensate them from the Trust Estate, and rely on their counsel without court approval.
5.03 Trust Protector (Optional)
Settlor may appoint a Trust Protector with authority to:
a. Remove and replace Trustee;
b. Amend administrative provisions to maintain Government Benefit eligibility; and
c. Resolve ambiguities consistent with Settlor’s intent.
The Trust Protector is not a fiduciary unless serving as Trustee.
5.04 Notice & Cure
Trustee shall provide written notice of any alleged breach to Settlor (if living), Beneficiary’s legal representative, and Trust Protector. Trustee shall have 30 days to cure before any remedy may be pursued.
6. DEFAULT & REMEDIES
6.01 Events of Default
Any of the following constitute a default:
1. Willful misconduct or gross negligence by Trustee;
2. Failure to render required accountings within 60 days after written request;
3. Distribution in knowing violation of § 3.04.
6.02 Remedies
A. Removal. Any interested party may petition the Probate Court of [COUNTY] for Trustee’s removal and surcharge.
B. Equitable Relief. The court may impose constructive trusts, injunctions, or any remedy in equity to protect Beneficiary.
C. Fees & Costs. A prevailing party is entitled to recover reasonable attorney fees and court costs from the Trust Estate or personally from the breaching fiduciary, as the court directs.
7. RISK ALLOCATION
7.01 Trustee Indemnification
Trustee (and its agents) shall be indemnified and held harmless out of the Trust Estate against any loss, liability, or expense, except to the extent arising from Trustee’s bad faith, willful misconduct, or gross negligence.
7.02 Limitation of Liability
Trustee’s liability, in any capacity, is limited to the assets of the Trust Estate; no personal assets of Trustee shall be exposed, except for acts described in § 7.01.
7.03 Force Majeure
Trustee shall not be liable for failure to perform due to events beyond reasonable control, including acts of God, governmental action, or pandemics, provided Trustee acts diligently to resume performance.
8. DISPUTE RESOLUTION
8.01 Governing Law
This Agreement and all questions regarding its validity, construction, and administration are governed by the laws of the State of Michigan, without regard to conflict-of-laws principles.
8.02 Forum Selection
Exclusive jurisdiction and venue lie in the Probate Court of [COUNTY], Michigan, concerning matters within that court’s statutory purview.
8.03 Limited Arbitration
A. Scope. Only Arbitrable Matters—namely, (i) Trustee fee disputes and (ii) accounting objections not involving eligibility-impacting distributions—shall be submitted to binding arbitration administered by the American Arbitration Association under its Commercial Rules.
B. Reservation of Court Authority. Any dispute implicating Beneficiary’s eligibility or requiring equitable relief shall remain under Probate Court jurisdiction.
C. Injunctive Relief. Pending arbitration, any party may seek provisional injunctive relief in Probate Court to protect Trust assets.
8.04 Jury Waiver
To the extent a matter is triable, the parties knowingly waive jury trial; however, most trust matters are equitable and non-jury in Probate Court.
9. GENERAL PROVISIONS
9.01 Amendment & Reformation
A. Administrative Amendments. Trustee, with written consent of the Trust Protector (if any), may amend administrative provisions to maintain Government Benefit eligibility, provided Beneficiary’s beneficial interests are not reduced.
B. Judicial Reformation. If any provision jeopardizes eligibility, any interested party may petition the Probate Court to reform this Agreement consistent with Settlor’s intent.
9.02 Assignment
No party may assign rights or delegate duties hereunder except as expressly provided.
9.03 Successors & Assigns
This Agreement binds and benefits the parties and their respective successors and permitted assigns.
9.04 Severability
If any provision is held unenforceable, the remainder shall be given full force, and the court may modify the offending provision to carry out Settlor’s manifest intent.
9.05 Entire Agreement
This document constitutes the entire agreement regarding the Trust, superseding all prior understandings.
9.06 Counterparts & Electronic Signatures
This Agreement may be executed in counterparts, each of which is deemed an original. Signatures in electronic or PDF format are binding.
10. EXECUTION BLOCK
IN WITNESS WHEREOF, the parties execute this Special Needs Trust Agreement as of the Effective Date.
10.01 Settlor
[SETTLOR NAME], Settlor
10.02 Trustee
I accept the trusteeship and agree to administer the Trust as provided herein.
[TRUSTEE NAME], Trustee
10.03 Alternate Trustee Acceptance (if applicable)
[ALTERNATE TRUSTEE NAME], Successor Trustee
10.04 Notary Acknowledgment
State of Michigan )
County of __ ) ss.
On this ___ day of ____, 20__, before me, a Notary Public, personally appeared the above-named individuals, 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 therein contained.
Notary Public, State of Michigan
My Commission Expires: ____
Schedule A – Initial Funding Property
[Describe cash amounts, securities, life-insurance proceeds, or other property transferred.]
[// GUIDANCE: Attach care plan, letter of intent, or beneficiary profile as a non-binding exhibit to assist future fiduciaries.]