Special Needs Trust - North Carolina

NORTH CAROLINA SUPPLEMENTAL NEEDS TRUST

(Special-Needs Beneficiary Trust Template)

TABLE OF CONTENTS

1. Document Header
2. Definitions

3. Operative Provisions
   3.1 Establishment of Trust & Funding
   3.2 Purpose and Special-Needs Compliance
   3.3 Distributions

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 Trust Title

“[SETTLOR NAME] Supplemental Needs Trust for the Benefit of [BENEFICIARY NAME]”

1.2 Parties

a. Settlor: [SETTLOR NAME], of [ADDRESS].
b. Initial Trustee: [TRUSTEE NAME], of [ADDRESS].
c. Beneficiary: [BENEFICIARY NAME], a person with a disability as defined herein.
d. Successor Trustee(s): [NAME(S) OR “As Appointed Pursuant to Section 9.2”].

1.3 Recitals

A. Settlor desires to establish an irrevocable trust under North Carolina law (N.C.G.S. Chapter 36C) to provide for the supplemental needs of Beneficiary without disqualifying Beneficiary from means-tested public benefits.
B. Trustee is willing to hold, administer, and distribute the Trust Estate for the exclusive benefit of Beneficiary in accordance with the terms set forth herein.
C. This instrument shall be known as the “Trust” and is effective as of [EFFECTIVE DATE] (“Effective Date”).

1.4 Governing Law & Jurisdiction

This Trust is governed by the laws of the State of North Carolina (the “Governing Law”). Proceedings concerning internal trust affairs are assigned as provided by N.C. Gen. Stat. § 36C-2-203 to the clerk of superior court or the Superior Court Division, as applicable.

2. DEFINITIONS

The following terms (alphabetically listed) have the meanings set forth below; capitalized terms used but not defined have their ordinary legal meaning.

“Approved Public Benefits” – Means-tested governmental assistance programs including, without limitation, Supplemental Security Income (“SSI”) and Medicaid, under 42 U.S.C. § 1396 et seq., and any successor or substantially similar program.

“Beneficiary” – [BENEFICIARY NAME], whose date of birth is [DOB] and Social Security Number is xxx-xx-[LAST FOUR].

“Distribution Request” – A written request made pursuant to Section 3.3.5.

“First-Party / Third-Party Trust Classification” – The designation in Section 3.1.2 indicating whether trust assets constitute (i) Beneficiary’s own assets (First-Party) triggering Medicaid reimbursement under 42 U.S.C. § 1396p(d)(4)(A), or (ii) assets of someone other than Beneficiary (Third-Party) not subject to such reimbursement.

“Person with a Disability” – An individual meeting the disability criteria in 42 U.S.C. § 1382c(a)(3). SSI blindness is defined separately in § 1382c(a)(2).

“Special Needs” – Beneficiary’s supplemental care, support, education, rehabilitation, therapy, habilitation, adaptive technology, travel and recreation, or other items that enhance quality of life but are not “basic support and maintenance” for SSI/Medicaid purposes.

“Trust Estate” – All property received by Trustee under Section 3.1, together with any additions, substitutions, accumulations, and proceeds thereof.

3. OPERATIVE PROVISIONS

3.1 Establishment of Trust & Funding

3.1.1 Creation. Settlor hereby irrevocably transfers to Trustee the property described in Schedule A (attached) to hold in trust for the purposes and on the terms stated herein.
3.1.2 [SELECT ONE]
a. ☐ First-Party SNT (Medicaid Payback Required).
b. ☐ Third-Party SNT (No Medicaid Payback).

3.1.3 Addition of Assets. Additional property may be added to the Trust Estate at any time by any person, estate, or entity, subject to Trustee’s written acceptance and the limitations of Section 3.2.3.

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.

3.2 Purpose and Special-Needs Compliance

3.2.1 Primary Purpose. To supplement, and not supplant, Beneficiary’s Approved Public Benefits and to enhance Beneficiary’s quality of life.
3.2.2 Discretionary Trust. All distributions are wholly within Trustee’s sole and absolute discretion. Beneficiary shall have no right to compel distributions or to assign, anticipate, or pledge any interest in the Trust Estate.
3.2.3 Non-Interference with Benefits. Trustee shall administer the Trust to avoid (i) rendering the Trust Estate a countable resource, or (ii) causing income to Beneficiary that would reduce or terminate Approved Public Benefits. Trustee may consult with qualified benefits counsel as needed, and Trust may bear the costs thereof.

3.3 Distributions

3.3.1 Permissible Distributions. Trustee may distribute income or principal for Beneficiary’s Special Needs, including:
• Medical and dental care not otherwise covered;
• Therapy, rehabilitation, and adaptive equipment;
• Educational, vocational, or recreational expenses;
• Transportation, including vehicle purchase or modifications;
• Personal services, attendants, and caregivers;
• Travel, entertainment, and cultural experiences; and
• Any non-food, non-shelter item permissible under then-current SSI/Medicaid resource rules.
3.3.2 Prohibited Distributions. Trustee shall not:
a. Distribute cash or cash equivalents directly to Beneficiary except as permissible “in-kind” support not reducing benefits;
b. Pay for shelter unless Trustee determines, after consulting benefits counsel, that such payment will not adversely affect Beneficiary’s benefits or that the benefit of doing so outweighs any reduction. Food is no longer counted 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.
3.3.3 Prioritization. Trustee shall first use non-Trust resources or available public benefits before making a distribution, unless immediate expenditure is in Beneficiary’s best interests.
3.3.4 Emergency & Exigent Circumstances. Trustee may provide for Beneficiary’s health, safety, or welfare even if such distribution may temporarily reduce benefits, provided Trustee documents the rationale in the Trust records.
3.3.5 Distribution Requests. Requests may be made by:
• Beneficiary, if legally competent;
• Beneficiary’s legal guardian or agent under power of attorney; or
• A Trust Protector (if appointed).

Trustee shall respond in writing within [15] days indicating approval, conditional approval, or denial with reasons.

4. REPRESENTATIONS & WARRANTIES

4.1 Settlor represents that:
a. Settlor owns the property transferred free of liens (except as disclosed in Schedule A);
b. Settlor has full legal authority to establish this Trust; and
c. The information furnished herein is accurate and complete.

4.2 Trustee represents that:
a. Trustee is qualified and willing to serve, and is not disqualified under applicable law;
b. Trustee shall administer the Trust in good faith, in accordance with its terms, the purposes of the Trust, and the Governing Law; and
c. Trustee has reviewed relevant SSI/Medicaid rules governing supplemental needs trusts.

4.3 Survival. The representations and warranties in this Section survive execution and remain enforceable throughout the Trust’s duration.

5. COVENANTS & RESTRICTIONS

5.1 Trustee Covenants.
a. Fiduciary Standard. Trustee shall act with the prudence and care required by North Carolina’s Prudent Investor Rule (N.C. Gen. Stat. § 36C-9-901 et seq.) and the North Carolina Uniform Trust Code.
b. Record-Keeping. Trustee shall maintain accurate books and records, retain receipts for all distributions, and make them available for inspection on reasonable notice.
c. Annual Accounting. Trustee shall render an annual written accounting to Beneficiary (or legal guardian) and, if applicable, the clerk of superior court or Department of Health and Human Services as required.
d. Notice of Change. Trustee shall notify Beneficiary and Settlor (if living) of any address change or intent to resign no fewer than [30] days before the effective date.

5.2 Beneficiary Restrictions. Beneficiary shall not assign, encumber, or otherwise transfer any interest herein; any attempted transfer is void.

6. DEFAULT & REMEDIES

6.1 Events of Default.
a. Material breach of fiduciary duty by Trustee;
b. Failure to render required accountings within [45] days after written demand;
c. Misuse or misappropriation of Trust assets; or
d. Insolvency or incapacity of Trustee without timely succession.

6.2 Notice & Cure. Any interested person may serve written notice of default on Trustee. Trustee has [30] days to cure or contest the allegation in a court with jurisdiction.

6.3 Remedies. Upon uncured default:
a. Any interested person may petition the clerk of superior court to remove and replace Trustee, as the clerk has original jurisdiction over such internal-affairs proceedings under N.C. Gen. Stat. § 36C-2-203(a);
b. Claims excluded from the clerk's jurisdiction under N.C. Gen. Stat. § 36C-2-203(f) must be brought before a judge of the Superior Court Division of the General Court of Justice; and
c. The court with jurisdiction over the claim may award reasonable attorney fees and costs against the Trust Estate and/or culpable Trustee.

7. RISK ALLOCATION

7.1 Trustee Indemnification. Trustee is indemnified from the Trust Estate against all claims, liabilities, and expenses, except to the extent arising from Trustee’s willful misconduct or gross negligence.

7.2 Limitation of Liability. In no event shall Trustee’s personal liability exceed the value of the Trust Estate, except for losses resulting from willful misconduct or fraud.

7.3 Insurance. Trustee may purchase fiduciary liability insurance payable from Trust assets.

7.4 Force Majeure. Trustee is excused from performance delays caused by events beyond Trustee’s reasonable control (e.g., natural disasters, governmental actions, or widespread systems failures).

8. DISPUTE RESOLUTION

8.1 Governing Law. North Carolina law governs the validity, interpretation, and administration of this Trust.

8.2 Forum. Proceedings concerning internal trust affairs shall be filed with the clerk of superior court or a judge of the Superior Court Division as allocated by N.C. Gen. Stat. § 36C-2-203. The governing instrument does not create a separate “State Probate Court.”

8.3 Limited Arbitration. Non-benefits disputes solely between co-trustees concerning internal administration may, at the election of any co-trustee, be submitted to confidential binding arbitration under the UNCITRAL Rules, seated in [CITY], North Carolina. The arbitrator shall have no authority to modify Trust terms or determine benefits eligibility issues.

8.4 Jury Waiver. None, as jury trials are unavailable in probate proceedings.

8.5 Injunctive Relief. A party may request any injunctive relief available from a court with jurisdiction; this Trust does not predetermine whether a bond or other condition applies.

9. GENERAL PROVISIONS

9.1 Amendment & Waiver.
a. Amendment. This Trust is irrevocable. Any amendment, reformation, or modification must comply with applicable law and be sought in the forum assigned by N.C. Gen. Stat. § 36C-2-203.
b. Waiver. A failure to enforce any provision is not a waiver of future enforcement.

9.2 Successor Trustees.
a. Resignation. Trustee may resign upon [30] days written notice to Beneficiary and any co-trustee, conditioned on appointment of a qualified successor.
b. Order of Succession. If no successor is named or able to serve, any interested person may petition the clerk of superior court to appoint a qualified successor trustee.
c. Transition. Outgoing Trustee shall transfer all Trust property and records to the successor within [30] days of appointment and deliver a final accounting.

9.3 Assignment. Neither the Trust Estate nor any interest herein may be voluntarily or involuntarily assigned, pledged, or hypothecated by Beneficiary.

9.4 Spendthrift Protection. The Trust is a spendthrift trust under North Carolina law (N.C. Gen. Stat. § 36C-5-502); the Trust Estate is not subject to claims of Beneficiary’s creditors.

9.5 Severability. If any provision is held invalid, the remaining provisions remain enforceable, and the invalid provision shall be reformed to the minimum extent necessary to effect its intent.

9.6 Entire Agreement. This instrument constitutes the entire trust agreement between the parties.

9.7 Counterparts; Electronic Signatures. This instrument may be executed in one or more counterparts, each deemed an original. Because this is an inter vivos trust (and not a will, codicil, or testamentary trust excluded under N.C. Gen. Stat. § 66-313(b)(1)), signatures transmitted by reputable electronic means are deemed original for all purposes to the extent permitted by the North Carolina Uniform Electronic Transactions Act, N.C. Gen. Stat. § 66-311 et seq.

10. EXECUTION BLOCK

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

10.1 Signatures

Settlor: ____________________________ Date: __________
[SETTLOR NAME]

Trustee: ____________________________ Date: __________
[TRUSTEE NAME]

State of North Carolina
County of _____________

I, the undersigned Notary Public, certify that [NAME] personally appeared before me this day, acknowledged the execution of the foregoing instrument, and swore or affirmed to me that the statements therein are true.

Date: _____________ (Seal)
__________________________________
Notary Public
My commission expires: _____________

10.2 Schedule A – Initial Trust Property

[Describe cash, securities, life-insurance proceeds, or other property contributed.]

10.3 Schedule B – Successor Trustees

[Optional listing.]

10.4 Schedule C – Medicaid Reimbursement (First-Party Trust Only)

Upon the death of Beneficiary, after payment of allowed administrative expenses, Trustee shall pay to the North Carolina Department of Health and Human Services, or such agency as may then administer Medicaid, an amount equal to the total medical assistance paid on behalf of Beneficiary under the State Medicaid Plan, to the extent required by 42 U.S.C. § 1396p(d)(4)(A). Any remaining Trust Estate shall be distributed to the remainder beneficiaries listed below in the proportions indicated:
• [NAME] – [%]
• [NAME] – [%]