Special Needs Trust - New Mexico

SPECIAL NEEDS TRUST AGREEMENT

(New Mexico – Irrevocable Supplemental Needs Trust)

TABLE OF CONTENTS

I. Document Header
II. Definitions
III. Operative Provisions
IV. Representations & Warranties
V. Covenants & Restrictions
VI. Default & Remedies
VII. Risk Allocation
VIII. Dispute Resolution
IX. General Provisions
X. Execution Block

I. DOCUMENT HEADER

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

1.2 Parties
  (a) Settlor: [SETTLOR FULL LEGAL NAME], a resident of [COUNTY], New Mexico (“Settlor”);
  (b) Initial Trustee: [TRUSTEE FULL LEGAL NAME], whose address is [ADDRESS] (the “Trustee”);
  (c) Primary Beneficiary: [DISABLED BENEFICIARY FULL LEGAL NAME], SSN-ending [XXX-XX-____] (the “Beneficiary”).

1.3 Effective Date
  This Trust is effective [DATE] (the “Effective Date”).

1.4 Governing Law & Jurisdiction
  This Trust is governed by and construed in accordance with the laws of the State of New Mexico, including the New Mexico Uniform Trust Code, NMSA 1978, § 46A-1-101 et seq. (the “NMUTC”). Pursuant to NMSA 1978, § 46A-2-203, the District Court of the State of New Mexico has exclusive subject-matter jurisdiction of all proceedings involving this Trust, and venue lies in the District Court for [COUNTY] County, New Mexico, as provided by NMSA 1978, § 46A-2-204 (the “Court”). New Mexico's separate, statutorily limited-jurisdiction probate courts (NMSA 1978, §§ 34-7-1 et seq.) handle only informal, uncontested probate of wills and do not have jurisdiction over trust administration or trust disputes.

1.5 Recitals
  A. Settlor desires to provide for the Beneficiary, who is classified as “disabled” under 42 U.S.C. § 1382c(a)(3), without jeopardizing Beneficiary’s eligibility for means-tested government benefits, including Supplemental Security Income (“SSI”) and Medicaid (collectively, “Means-Tested Government Benefits”).
  B. This Trust is funded with property belonging to Settlor and not with Beneficiary's own assets; it is therefore a third-party discretionary, irrevocable supplemental needs trust intended to conform to 42 U.S.C. § 1396p(d) and applicable New Mexico law, and it is not subject to the mandatory Medicaid payback requirement of 42 U.S.C. § 1396p(d)(4)(A), which applies only to first-party (self-settled) trusts funded with the disabled beneficiary's own assets. If any portion of the Trust Estate at any time consists of property attributable to the Beneficiary's own assets (e.g., a personal injury settlement, back benefits, or an inheritance received outright by the Beneficiary), that portion is subject to the payback requirement of 42 U.S.C. § 1396p(d)(4)(A) as provided in § 3.12(b)(1); practitioners should avoid commingling first-party assets into this third-party instrument and should instead use a properly drafted first-party trust for such assets.

C. Settlor hereby transfers and delivers to the Trustee the property described on Schedule A (the “Initial Trust Estate”) and intends to make additional transfers from time to time.

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.

II. DEFINITIONS

For ease of reference, capitalized terms are defined alphabetically below.

“Alternate Beneficiary” – The person(s) or entity(ies) designated in § III.12 to receive any remaining Trust Estate upon termination.

“Beneficiary” – The individual identified in § 1.2(c).

“Beneficiary’s Lifetime” – The period commencing on the Effective Date and ending on the Beneficiary’s death.

“Distribution Standards” – The discretionary standards set forth in § III.5 governing distributions for Supplemental Needs.

“Government Agencies” – Any federal, state, or local agency administering Means-Tested Government Benefits.

“Means-Tested Government Benefits” – SSI, Medicaid, SNAP, housing subsidies, and any other means-tested public assistance program now or hereafter in effect.

“Protected Resources” – Assets or income excluded from resource and income calculations for Means-Tested Government Benefits under applicable law and agency policy.

“Supplemental Needs” – The Beneficiary’s special or supplemental medical, therapeutic, educational, recreational, technological, and quality-of-life needs not otherwise provided or fully covered by Means-Tested Government Benefits, as further detailed in § III.5(b).

“Trust” – This Special Needs Trust Agreement, together with any amendments permitted herein.

“Trust Estate” – All property, real or personal, tangible or intangible, including all additions and accretions, subject to the Trust.

“Trustee” – The person or institution acting as trustee of the Trust, including any Successor Trustee.

III. OPERATIVE PROVISIONS

3.1 Creation & Irrevocability
 (a) The Trust is irrevocable. Settlor expressly waives all rights or powers, whether alone or in conjunction with others, to alter, revoke, or terminate the Trust except as provided in § IX.1 (Administrative Amendments).
 (b) Beneficiary shall have no power to compel distributions, modify, revoke, or assign any interest in the Trust.

3.2 Funding
 The Trustee acknowledges receipt of the Initial Trust Estate and shall hold, manage, invest, and distribute the Trust Estate subject to this Agreement. Additional property may be added to the Trust at any time with Trustee consent, provided such additions are compatible with Means-Tested Government Benefit rules.

3.3 Spendthrift Protection
 To the maximum extent permitted under applicable law, all interests in the Trust shall be held subject to a spendthrift provision. No beneficiary may anticipate, assign, pledge, or encumber any interest in the Trust, nor shall such interests be subject to attachment, levy, or other legal process.

3.4 Sole Benefit Requirement
 All distributions must be for the sole benefit of the Beneficiary during Beneficiary’s Lifetime and in strict accordance with the Distribution Standards.

3.5 Distribution Standards
 (a) Pure Discretion. The Trustee shall have sole and absolute discretion to distribute so much of the net income and principal as the Trustee deems advisable for the Beneficiary’s Supplemental Needs.
 (b) Supplemental Needs Defined. Supplemental Needs include, without limitation:
  • Medical, dental, vision, psychiatric, and psychological services not covered by insurance or public benefits;
  • Assistive devices, rehabilitation, and habilitation services;
  • Education, tutoring, vocational training, and employment supports;
  • Modifications to vehicles and residences;
  • Computers, internet access, and adaptive technology;
  • Travel, recreation, cultural experiences, and companion services;
  • Legal, advocacy, and fiduciary expenses.
 (c) Prohibition on Support Distributions. The Trustee shall avoid any distribution that would be considered “in-kind support and maintenance” under 20 C.F.R. § 416.1130 (i.e., shelter, including room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, or garbage collection services) unless the Trustee, after consultation with qualified counsel, determines that the benefit of such distribution outweighs any resulting reduction in benefits. Food is not in-kind support and maintenance and may be distributed for the Beneficiary's benefit without SSI reduction, per the SSA final rule at 89 Fed. Reg. 21,209 (Mar. 27, 2024), effective September 30, 2024.
 (d) Cash Policy. Cash distributions directly to the Beneficiary are strongly discouraged and should be made only after evaluating the potential impact on benefits eligibility.
 (e) Trustee Documentation. The Trustee shall maintain contemporaneous records of the purpose and amount of every distribution.

3.6 Right to Refuse Distribution
 The Trustee may refuse any request for distribution that the Trustee reasonably believes may (i) jeopardize Means-Tested Government Benefits, (ii) violate the Distribution Standards, or (iii) contravene applicable law.

3.7 Trustee Powers
 In addition to all powers granted by law, the Trustee may, without court order:
 (a) Invest and reinvest in any property the Trustee deems prudent, without regard to diversification rules that might otherwise apply;
 (b) Employ professionals, including investment advisers, attorneys, and accountants, and pay their fees from the Trust Estate;
 (c) Buy, sell, lease, exchange, or encumber Trust property;
 (d) Make distributions in cash or in kind;
 (e) Allocate receipts and expenses between income and principal as the Trustee deems equitable;
 (f) Prosecute or defend claims at the expense and risk of the Trust Estate; and
 (g) Execute and deliver any instrument necessary or desirable to carry out the Trust purposes.

3.8 Trustee Succession
 (a) Successor Trustees. If the Trustee resigns, is removed, or ceases to serve, the next person named in Schedule B shall become Trustee.
 (b) Resignation. The Trustee may resign upon at least 30 days’ written notice to the Settlor (if living), the Beneficiary, and any co-trustee or successor trustee.
 (c) Removal. The Court may remove any Trustee for cause upon petition of the Beneficiary, Settlor, co-trustee, or Government Agency with standing.

3.9 Trustee Bond
 No bond shall be required of any Trustee unless ordered by the Court pursuant to NMSA 1978, § 46A-7-702.

3.10 Accountings & Reporting
 (a) Annual Accounting. Within 90 days after each calendar year-end, the Trustee shall provide an accounting to the Beneficiary (or court-appointed guardian) and any other party entitled to receive an accounting under applicable law.
 (b) Agency Reporting. The Trustee shall timely respond to any information request or audit by Government Agencies and shall furnish such reports as those agencies require to determine or maintain the Beneficiary’s eligibility.

3.11 Taxes
 The Trust is intended to be a “grantor trust” for federal income tax purposes. The Trustee shall sign and file all required tax returns. Any income tax attributable to Trust income shall, to the extent permitted by law, be paid from the Trust Estate.

3.12 Termination & Remainder
 (a) Mandatory Termination. The Trust shall terminate upon the earliest of:
  (1) the death of the Beneficiary;
  (2) exhaustion of the Trust Estate; or
  (3) a final judicial determination that continuation of the Trust is unlawful or impossible.
 (b) Disposition of Remainder. Upon termination:
  (1) No General Payback; Contingent First-Party Payback. Because this Trust is funded exclusively with property belonging to Settlor and not with Beneficiary's own assets (§ 1.5(B)), no reimbursement or payback is owed to the New Mexico Health Care Authority (successor to the New Mexico Human Services Department, effective July 1, 2024) or any other Medicaid agency upon the Beneficiary's death or the Trust's earlier termination, and 42 U.S.C. § 1396p(d)(4)(A) does not apply. If, notwithstanding § 1.5(B), any portion of the Trust Estate at any time consists of property attributable to the Beneficiary's own assets, the Trustee shall first reimburse the New Mexico Health Care Authority and any other state Medicaid agency that provided Medicaid benefits to the Beneficiary, to the extent required by 42 U.S.C. § 1396p(d)(4)(A) and 8.281.510 NMAC, from that portion of the Trust Estate only, up to the total medical assistance paid on behalf of the Beneficiary.
  (2) Remaining Balance. After satisfying any Medicaid payback obligation under Paragraph (1), the Trustee shall distribute the remaining Trust Estate to the Alternate Beneficiary(ies) designated in Schedule C, per stirpes unless otherwise indicated.
 (c) Hold-back for Expenses. Prior to final distribution, the Trustee may hold a reasonable reserve for unpaid expenses, taxes, or liabilities.

IV. REPRESENTATIONS & WARRANTIES

4.1 Settlor
 (a) Authority. Settlor has full legal right, power, and authority to establish this Trust and to transfer the property listed in Schedule A.
 (b) No Conflicts. The execution and delivery of this Trust does not conflict with any other agreement or court order binding on the Settlor.

4.2 Trustee
 (a) Acceptance. The Trustee accepts the trusteeship and agrees to administer the Trust in good faith, in a manner consistent with the purposes herein, and in accordance with the NMUTC and other applicable law.
 (b) Fiduciary Duty. The Trustee acknowledges fiduciary duties of loyalty and prudent administration to the extent not specifically modified by this Agreement.

4.3 Survival
 All representations and warranties survive the execution of this Trust and remain in effect during the lifetime of the Trust.

V. COVENANTS & RESTRICTIONS

5.1 Compliance with Benefit Rules
 The Trustee shall administer the Trust to preserve the Beneficiary’s eligibility for Means-Tested Government Benefits.

5.2 Consultation
 The Trustee shall consult with professionals knowledgeable in special needs planning before making any distribution with uncertain benefit impact.

5.3 Notice of Changes
 The Trustee shall notify the Beneficiary (or guardian) and Government Agencies of any material change to the Trust that may affect eligibility.

5.4 No Commingling
 Trust assets shall be maintained separate from the Trustee’s personal assets and from any other trust or account except as permitted under pooled-trust rules (if applicable).

VI. DEFAULT & REMEDIES

6.1 Events of Default
 An “Event of Default” occurs if a Trustee:
 (a) commits a material breach of trust;
 (b) fails to provide required accountings within 60 days after written notice;
 (c) is adjudicated bankrupt or insolvent; or
 (d) is convicted of a felony or crime involving dishonesty or breach of fiduciary duty.

6.2 Notice & Cure
 Before seeking removal, any interested party shall give the Trustee written notice of the default and a 30-day opportunity to cure, unless cure is impossible or further delay would cause irreparable harm.

6.3 Remedies
 Upon an uncured Event of Default, the Court may:
 (a) remove the Trustee and appoint a Successor Trustee;
 (b) surcharge the Trustee’s fiduciary bond or Trust compensation;
 (c) issue injunctive relief to protect the Trust Estate; and/or
 (d) award reasonable attorney fees and costs to the prevailing party.

VII. RISK ALLOCATION

7.1 Trustee Reimbursement and Exculpation
 The Trustee is entitled to reimbursement from the Trust Estate for expenses as provided by NMSA 1978, § 46A-7-709. No term relieves the Trustee from liability for a breach committed in bad faith or with reckless indifference to the Trust's purposes or the Beneficiary's interests, or from any other liability that cannot be excused under § 46A-10-1008.

7.2 Limitation of Liability
 As provided by NMSA 1978, § 46A-10-1010, the Trustee is not personally liable on a contract properly entered into in the Trustee's fiduciary capacity if the Trustee disclosed that capacity, and the Trustee is personally liable for torts committed in the course of administering the Trust, or for obligations arising from ownership or control of Trust property, only if the Trustee is personally at fault.

7.3 Insurance
 The Trustee is authorized, but not required, to purchase fiduciary liability insurance payable from the Trust Estate.

7.4 Force Majeure
 The Trustee shall not be liable for failure to perform caused by acts of God, governmental restrictions, pandemics, war, or other causes beyond reasonable control, provided the Trustee acts diligently to resume performance.

VIII. DISPUTE RESOLUTION

8.1 Governing Law
 New Mexico substantive and procedural law governs all disputes.

8.2 Forum Selection
 As provided in § 1.4, exclusive venue lies in the District Court under NMSA 1978, §§ 46A-2-203 and 46A-2-204, which retains continuing jurisdiction over the Trust. New Mexico's separate probate courts do not have jurisdiction over trust disputes.

8.3 Limited Arbitration
 Notwithstanding § 8.2, upon mutual written agreement of all then-serving fiduciaries and all beneficiaries with legal capacity, discrete investment-related disputes not involving Trust administration or beneficiary distributions may be submitted to binding arbitration under the New Mexico Uniform Arbitration Act. Any arbitral award shall not limit the Court’s supervisory authority.

8.4 Jury Waiver
 Proceedings in the Court are bench proceedings; no party shall demand a jury trial.

8.5 Injunctive Relief
 Nothing herein limits the Court’s power to grant temporary restraining orders, preliminary injunctions, or other equitable relief to protect the Trust Estate or enforce fiduciary duties.

IX. GENERAL PROVISIONS

9.1 Administrative Amendments
 The Trustee, with written consent of the Beneficiary (or guardian) and approval of the Court, may amend this Trust solely to:
 (a) comply with changes in federal or state law affecting Means-Tested Government Benefits;
 (b) maintain tax status or clarify administrative provisions; or
 (c) correct scrivener’s errors.
 No amendment may expand the Beneficiary’s right to compel distributions or revoke the Trust.

9.2 Waiver
 Failure to enforce any provision shall not constitute a waiver of that or any other provision.

9.3 Assignment
 Except as expressly permitted, no party may assign rights or delegate duties under this Trust without Court approval.

9.4 Successors & Assigns
 This Trust is binding upon and inures to the benefit of the parties’ respective heirs, personal representatives, successors, and permitted assigns.

9.5 Severability
 If any provision is held invalid or unenforceable, that provision shall be reformed to the minimum extent necessary, and the remaining provisions shall remain in full force.

9.6 Entire Agreement
 This document constitutes the entire agreement of the parties concerning the subject matter herein and supersedes all prior agreements or understandings.

9.7 Counterparts & Electronic Signatures
 This Trust may be executed in counterparts, each of which is deemed an original. Signatures transmitted electronically or by facsimile have the same effect as originals.

X. EXECUTION BLOCK

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

Settlor

________________________________________
[SETTLOR NAME]

Date: ___________________

Trustee

________________________________________
[TRUSTEE NAME], Trustee

Date: ___________________

NOTARY ACKNOWLEDGMENT

State of New Mexico
County of [________________________________]

This instrument was acknowledged before me on ____________________, 20___, by [SETTLOR NAME] as Settlor and by [TRUSTEE NAME] as Trustee.

_____________________________________
Notary Public
My Commission Expires: _______________

SCHEDULE A – INITIAL TRUST ESTATE

[Detailed list of cash, securities, real property, insurance proceeds, or other assets being transferred.]

SCHEDULE B – SUCCESSOR TRUSTEE DESIGNATION

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

SCHEDULE C – ALTERNATE BENEFICIARIES

[List names, relationships, and shares or percentages.]