SPECIAL NEEDS TRUST AGREEMENT
(Minnesota Irrevocable Third-Party “Supplemental Needs” Trust)
TABLE OF CONTENTS
I. Document Header.............................................................. 2
II. Definitions Section.......................................................... 3
III. Operative Provisions......................................................... 6
IV. Representations & Warranties................................................. 14
V. Covenants & Restrictions..................................................... 15
VI. Events of Default & Remedies................................................. 17
VII. Risk Allocation.............................................................. 19
VIII. Dispute Resolution.......................................................... 21
IX. General Provisions........................................................... 23
X. Execution Block.............................................................. 26
Schedule A – Funding Schedule..................................................... 28
[// GUIDANCE: Update page numbers once the draft is finalized.]
I. DOCUMENT HEADER
1.1 Title & Parties
This SPECIAL NEEDS TRUST AGREEMENT (“Trust Agreement”) is made and entered into as of [EFFECTIVE DATE] (the “Effective Date”) by and between:
• [SETTLOR LEGAL NAME], an individual with an address of [SETTLOR ADDRESS] (“Settlor”); and
• [TRUSTEE LEGAL NAME], with an address of [TRUSTEE ADDRESS] (“Trustee”).
The trust created hereby shall be known as “The [BENEFICIARY NAME] Supplemental Needs Trust” (the “Trust”).
1.2 Recitals
A. Beneficiary. [BENEFICIARY LEGAL NAME] (“Beneficiary”) is an individual who is [describe disability] and meets the definition of “disabled” under 42 U.S.C. § 1382c(a)(3).
B. Purpose. Settlor desires to provide for Beneficiary’s supplemental needs while maintaining Beneficiary’s eligibility for Supplemental Security Income (“SSI”), Medical Assistance (“Medicaid”), and other means-tested governmental benefit programs (collectively, “Government Assistance Programs”).
C. Irrevocability. Settlor intends this instrument to be irrevocable. Neither Settlor, Beneficiary, nor any other person shall possess any power, whether alone or in conjunction with others, to alter, amend, revoke, or terminate the Trust except as expressly provided herein.
D. Governing Law & Forum. This Trust shall be governed by and construed in accordance with the laws of the State of Minnesota (without regard to conflict-of-laws principles) and shall be subject to the continuing jurisdiction of the District Court, Probate Division, in and for the County of [COUNTY, MN] (the “Probate Court”).
II. DEFINITIONS SECTION
For ease of reference, capitalized terms used throughout this Trust Agreement have the meanings set forth below. All definitions apply equally to the singular and plural forms of the terms defined.
“Accounting Period” – Each fiscal year of the Trust and any partial period ending on termination.
“Additional Property” – Any property, real or personal, tangible or intangible, added to the Trust after the Effective Date as permitted under § 3.2.
“Beneficiary” – The individual identified in Recital A for whose sole benefit this Trust is established.
“Disable(d)” – Having the meaning assigned in 42 U.S.C. § 1382c(a)(3), or any successor statute relied upon by SSI/Medicaid eligibility rules.
“Disqualified Distribution” – Any distribution that would (i) be counted as “income” or “resource” to Beneficiary for purposes of means-tested Government Assistance Programs, or (ii) otherwise reduce or eliminate such benefits, unless Trustee, after consulting competent benefits counsel, determines a distribution is nevertheless in the Beneficiary’s best interest.
“Fiduciary” – Trustee, any Co-Trustee, and any Successor Trustee acting hereunder.
“Government Assistance Programs” – All present or future federal, state, or local programs providing medical, cash, housing, or other assistance on a means-tested basis, including but not limited to SSI and Medicaid.
“Investment Standard” – The prudent investor rule as modifiable under Minn. law and this Agreement.
“Qualified Disability Expenses” – Expenses related to the Beneficiary’s health, education, maintenance, and support not otherwise provided by Government Assistance Programs, including (without limitation) medical, dental, vision, therapies, adaptive technologies, transportation, personal care attendants, education, vocational training, recreation, travel, legal, guardianship, and administrative costs.
“Special Needs” – Those needs of the Beneficiary that supplement, and do not supplant, what is otherwise available to Beneficiary from Government Assistance Programs or other resources.
“Trust” – The Trust created by this Agreement, together with any additions, accretions, or substitutions thereto.
“Trust Assets” – All property held from time to time in the Trust, together with all income and proceeds therefrom.
“Trust Protector” – The individual or entity, if any, appointed under § 5.7 with the powers therein described.
“Trustee” – The Fiduciary acting from time to time as trustee of the Trust.
[// GUIDANCE: Add or delete definitions as needed for the particular drafting project.]
III. OPERATIVE PROVISIONS
3.1 Creation & Funding
3.1.1 Establishment. Settlor hereby transfers and assigns to Trustee the property described in Schedule A attached hereto and made a part hereof, receipt of which Trustee acknowledges.
3.1.2 Irrevocable Trust. The Trust hereby created is irrevocable. Settlor expressly relinquishes all retained interests described in § 3.3.
3.1.3 Additional Contributions. Third parties may, with Trustee’s consent, add Additional Property by gift, bequest, devise, or other transfer, provided such contribution is irrevocable and made subject to the terms of this Agreement.
[// GUIDANCE: In Minnesota, assets of the Beneficiary generally should NOT be added to a third-party SNT to avoid mandatory payback. Draft a separate § 1396p(d)(4)(A) trust if Beneficiary’s own assets will be transferred.]
3.2 Purpose & Distribution Standards
3.2.1 Supplemental Purpose. The primary purpose of this Trust is to provide for the Beneficiary’s Special Needs in a manner that will not jeopardize eligibility for Government Assistance Programs.
3.2.2 Sole Benefit Requirement. All distributions must be for the sole benefit of the Beneficiary, whether paid directly to third-party vendors or indirectly for goods/services that primarily benefit the Beneficiary.
3.2.3 Trustee’s Absolute Discretion.
(a) Trustee shall have sole and absolute discretion to distribute so much of the net income and principal as Trustee deems advisable for Beneficiary’s Qualified Disability Expenses.
(b) No distribution shall be mandatory. Beneficiary shall have no enforceable right to compel any distribution.
3.2.4 Compliance Standard. Trustee shall consider the effect of any proposed distribution on Beneficiary’s eligibility for, or entitlement to, Government Assistance Programs. Trustee may seek written benefits counsel opinions and may rely conclusively on such advice.
3.2.5 Prohibited Distributions. Unless advisable under § 3.2.4(b), Trustee shall not:
(i) Make cash or cash-equivalent distributions directly to Beneficiary;
(ii) Provide food or shelter in a manner that would be treated as in-kind support and maintenance (“ISM”) under SSI rules; or
(iii) Pay any expense for which a Government Assistance Program is otherwise responsible.
3.2.6 “Best Interest” Override. Notwithstanding the foregoing, Trustee may make a Disqualified Distribution after weighing (i) Beneficiary’s immediate needs, (ii) anticipated duration of benefits ineligibility, and (iii) other available resources, provided Trustee documents the rationale in the Trust records.
3.2.7 No Support Trust. This Trust is intentionally not a “support” trust. References to Beneficiary’s health, education, maintenance, and support shall be construed as guides to Trustee’s discretion and not as enforceable standards.
3.3 Spendthrift & Non-Assignment
3.3.1 Spendthrift Protection. To the maximum extent permitted by law, no interest of Beneficiary in the Trust shall be subject to anticipation, assignment, pledge, or encumbrance, nor to attachment, garnishment, execution, or other legal or equitable process.
3.3.2 No Pledge for Credit. Beneficiary shall not have authority to pledge trust distributions as security or collateral for any loan.
3.4 Tax Matters
3.4.1 Grantor Trust Status Optional. [SELECT ONE]
(a) ___ Intended Grantor Trust (Settlor retains power under IRC § 675(4)(C)); or
(b) ___ Non-Grantor Complex Trust.
[// GUIDANCE: Check with tax counsel. Third-party SNTs are frequently drafted as non-grantor trusts to avoid including trust income on Settlor’s return.]
3.4.2 Tax Identification. Trustee shall obtain and use a separate EIN unless the Trust is drafted and maintained as a grantor trust.
3.4.3 Tax Reporting. Trustee shall prepare and file all required federal, state, and local tax returns.
3.5 Trustee’s Administrative Powers
Subject to the Investment Standard, Trustee shall have, in addition to all powers granted by statute or common law, the following powers without Probate Court approval:
(a) Retain, invest, and reinvest Trust Assets in any kind of property;
(b) Employ professional advisors and delegate investment functions;
(c) Lease, improve, or sell real property;
(d) Commingle cash for investment purposes;
(e) Initiate or defend legal proceedings;
(f) Purchase life, health, or property insurance for the Beneficiary’s benefit;
(g) Make distributions in cash or in-kind; and
(h) All other powers reasonably necessary to administer the Trust.
[// GUIDANCE: Consider incorporating uniform directed trust provisions if a professional investment advisor will manage assets.]
3.6 Termination & Remainder
3.6.1 Termination Events. The Trust shall terminate upon the earliest of:
(i) Beneficiary’s death;
(ii) Distribution of all Trust Assets in accordance with this § 3.6; or
(iii) Court-ordered termination pursuant to Minnesota law.
3.6.2 Distribution Upon Beneficiary’s Death. Upon Beneficiary’s death, and after payment of (a) all Trust expenses, (b) approved taxes, and (c) outstanding administrative fees, Trustee shall distribute the remaining Trust Assets to the following remainder beneficiaries:
• [PRIMARY REMAINDER BENEFICIARY] – ___ %
• [ALTERNATE REMAINDER BENEFICIARY] – ___ %
If none of the above survive Beneficiary, then to [TERTIARY DEFAULT].
[// GUIDANCE: Because this is a third-party SNT, no Medicaid “payback” is required. If drafting a self-settled trust, insert mandatory reimbursement language as required by 42 U.S.C. § 1396p(d)(4)(A).]
3.6.3 Early Termination. Trustee may petition the Probate Court for early termination if continued administration becomes impracticable relative to the size of the Trust, provided termination will not adversely affect Beneficiary’s eligibility for Government Assistance Programs.
3.7 Trust Protector (Optional)
3.7.1 Appointment. Settlor appoints [TRUST PROTECTOR NAME] as initial Trust Protector. A majority in interest of the remainder beneficiaries may appoint a successor Trust Protector if the office becomes vacant.
3.7.2 Powers. The Trust Protector may:
(a) Remove and replace Trustee with or without cause;
(b) Amend administrative provisions to ensure continued compliance with Government Assistance Programs;
(c) Resolve ambiguities consistent with Settlor’s intent;
(d) Consent to Trustee compensation; and
(e) Exercise any further powers granted by written instrument delivered to Trustee.
3.7.3 Fiduciary Standard. The Trust Protector shall act in a fiduciary capacity and shall be liable only for willful misconduct or gross negligence.
IV. REPRESENTATIONS & WARRANTIES
4.1 Settlor Representations.
(a) Authority. Settlor possesses full legal capacity to establish this Trust and to transfer the property described in Schedule A free of encumbrances, except as disclosed.
(b) Non-Contravention. The execution and delivery of this Agreement do not conflict with any other agreement binding Settlor or the transferred property.
4.2 Trustee Representations.
(a) Acceptance. Trustee accepts the Trust and the fiduciary duties imposed herein and under applicable law.
(b) Qualifications. Trustee is not disqualified from acting hereunder and is capable of obtaining any required bonding or insurance.
4.3 Survival. The representations and warranties in §§ 4.1 and 4.2 shall survive execution of this Agreement and remain in force for the duration of the Trust.
V. COVENANTS & RESTRICTIONS
5.1 Affirmative Covenants of Trustee.
(a) Compliance. Administer the Trust in accordance with Minnesota trust law, applicable federal law, and this Agreement.
(b) Recordkeeping. Maintain complete and accurate books and records.
(c) Reporting. Provide annual accountings to Beneficiary (or legal guardian) and, upon request, to the Probate Court.
(d) Bonding. Obtain fiduciary bond [YES / NO / WAIVED] as set forth in § 5.3.
5.2 Negative Covenants of Trustee.
(a) No Self-Dealing. Except as permitted under Minn. law, Trustee shall not engage in transactions that constitute self-dealing.
(b) No Commingling. Trust Assets shall be segregated from other property under Trustee’s control, except as permitted for common-fund investments.
5.3 Fiduciary Bond. Unless waived below, Trustee shall furnish a corporate surety bond in favor of Beneficiary in the face amount of [AMOUNT].
☐ Bond Waived ☐ Bond Required
5.4 Trustee Compensation. Trustee shall be entitled to reasonable compensation consistent with prevailing corporate fiduciary fee schedules, or as otherwise approved by the Probate Court.
5.5 Notice & Cure. Trustee shall provide written notice to Settlor (if living), Beneficiary’s guardian, and Trust Protector of any material breach or potential conflict of interest within ten (10) days of discovery thereof. Trustee shall have thirty (30) days to cure before any removal for cause under § 6.1.
5.6 Compliance Reviews. The Trust Protector or any interested person may engage an independent benefits consultant to review Trust administration annually. Trust shall bear reasonable costs thereof.
5.7 Amendment Authority. Only the Probate Court, upon petition from Trustee or Trust Protector, may amend the Trust to (i) maintain Beneficiary’s eligibility for Government Assistance Programs, (ii) respond to changes in federal or state law, or (iii) correct scrivener’s errors. No amendment may confer a beneficial interest on Settlor or enlarge Beneficiary’s rights to mandate distributions.
VI. DEFAULT & REMEDIES
6.1 Events of Default. Each of the following constitutes an “Event of Default”:
(a) Trustee’s willful misconduct, gross negligence, or breach of fiduciary duty;
(b) Failure to cure any material breach within the period specified in § 5.5;
(c) Trustee insolvency, dissolution, or loss of legal authority to act; or
(d) Failure to maintain required bond or insurance.
6.2 Remedies. Upon occurrence of an Event of Default, any interested person may:
(i) Petition the Probate Court to suspend, remove, or surcharge Trustee;
(ii) Seek an accounting or injunction to protect Trust Assets;
(iii) Compel Trustee to reimburse losses and pay reasonable attorneys’ fees; or
(iv) Invoke the limited arbitration procedure in § 8.3 for monetary claims not involving discretionary distribution decisions.
6.3 Graduated Consequences. Courts are encouraged to employ the least drastic remedy adequate to protect Beneficiary’s interests, escalating from supervised administration to removal and surcharge if warranted.
6.4 Attorney Fees & Costs. The prevailing party in any action regarding an Event of Default shall be entitled to recover reasonable attorneys’ fees, expert witness fees, and court costs, payable from (i) the Trust, or (ii) personally from a breaching Trustee if surcharge is ordered.
VII. RISK ALLOCATION
7.1 Indemnification of Trustee
7.1.1 Scope. To the fullest extent permitted by law, Trustee and its agents shall be indemnified and held harmless from and against any and all liabilities, losses, damages, claims, costs, and expenses (including reasonable attorneys’ fees) arising out of or in connection with administration of the Trust, except to the extent resulting from Trustee’s willful misconduct or gross negligence.
7.1.2 Source of Payment. Indemnification shall be paid solely from Trust Assets; no party shall have personal liability beyond the assets of the Trust.
7.1.3 Advancement. Expenses may be advanced prior to final disposition upon written undertaking by the Trustee to repay if it is ultimately determined that Trustee was not entitled to indemnification.
7.2 Limitation of Liability
Trustee’s aggregate liability for all claims arising in any Accounting Period shall not exceed the total value of Trust Assets under Trustee’s control at the time the cause of action accrues.
7.3 Insurance
Trustee may purchase fiduciary liability insurance, with premiums payable from the Trust, to cover risks not fully addressed by indemnification.
7.4 Force Majeure
Trustee shall not be liable for delays or failures in performance caused by events beyond reasonable control, including acts of God, war, civil unrest, pandemics, or changes in applicable law that materially affect Trust administration.
VIII. DISPUTE RESOLUTION
8.1 Governing Law
This Trust Agreement and all disputes arising hereunder shall be governed by Minnesota substantive law.
8.2 Forum Selection & Jurisdiction
The Probate Court shall have exclusive and continuing jurisdiction over the Trust, except as provided in § 8.3.
8.3 Limited Arbitration
8.3.1 Arbitrable Matters. Monetary claims for breach of fiduciary duty, fee disputes, or investment-related losses (but not distribution decisions or petitions for removal) shall be submitted to confidential, binding arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules.
8.3.2 Seat & Venue. The arbitration shall be seated in [COUNTY], Minnesota.
8.3.3 Interim Relief. Nothing herein limits any party’s right to seek provisional or injunctive relief from the Probate Court to preserve Trust Assets pending arbitration.
8.4 Jury Trial Waiver
To the extent any claim is heard outside Probate Court (e.g., arbitration award confirmation), the parties knowingly, voluntarily, and irrevocably waive any right to a trial by jury.
8.5 Equitable Relief
Trustee, Beneficiary, or any interested person may petition the Probate Court for injunctive or other equitable relief to enforce Trust terms or prevent irreparable harm.
IX. GENERAL PROVISIONS
9.1 Amendment & Waiver. No amendment, modification, or waiver of any provision of this Trust shall be effective unless in writing and approved by the Probate Court as provided in § 5.7. A waiver on one occasion shall not constitute a waiver on any subsequent occasion.
9.2 Assignment & Delegation. Except as expressly provided, no party may assign rights or delegate duties under this Trust without Probate Court approval.
9.3 Successors & Assigns. This Trust shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, and legal representatives of the parties.
9.4 Severability. If any provision of this Trust is determined invalid or unenforceable, such determination shall not affect the remaining provisions, which shall be reformed to best effectuate Settlor’s intent.
9.5 Entire Agreement. This instrument constitutes the complete and exclusive statement of Settlor’s intent with respect to the subject matter and supersedes all prior or contemporaneous oral or written statements.
9.6 Counterparts & Electronic Signatures. This Trust may be executed in multiple counterparts, each of which shall be deemed an original. Counterparts may be delivered by facsimile, PDF, or other electronic means, and electronic signatures shall be treated as originals.
9.7 Headings. Headings are for convenience only and shall not affect interpretation.
9.8 Gender & Number. All references to gender include all genders; references to the singular include the plural and vice versa where context so requires.
X. EXECUTION BLOCK
IN WITNESS WHEREOF, Settlor and Trustee have executed this Trust Agreement as of the Effective Date.
10.1 Settlor
[SETTLOR LEGAL NAME], Settlor
Date: _______
10.2 Trustee
[TRUSTEE LEGAL NAME], Trustee
Date: _______
[// GUIDANCE: Insert additional signature blocks for each Co-Trustee, Trust Protector, or Notary as required. Minnesota notarial acknowledgment is recommended for recordability and ease of proof.]
Schedule A – Funding Schedule
Initial Trust Corpus:
- Cash: $ [AMOUNT]
- Brokerage Account No. [____] at [INSTITUTION]
- [DESCRIPTION OF OTHER PROPERTY]
(End of Schedule A)
[// GUIDANCE:
1. Verify compliance with the most current Minnesota Trust Code provisions before finalizing.
2. Confirm that all placeholders (names, percentages, county, bond amount, etc.) are completed accurately.
3. Review the tax classification election in § 3.4 with a qualified tax advisor.
4. If Beneficiary’s own funds will be transferred, convert to a self-settled payback trust and incorporate mandatory Medicaid reimbursement language.
5. Consider filing a Notice of Irrevocable Trust with the appropriate Minnesota court under Minn. law to establish jurisdiction.]