Special Needs Trust - Pennsylvania

SPECIAL NEEDS TRUST AGREEMENT

(Pennsylvania Uniform Trust Act – 20 Pa.C.S. § 7701 et seq.)

TABLE OF CONTENTS

1. Document Header
2. Definitions
3. Operative Provisions
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 Title and Parties

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

• [GRANTOR NAME], residing at [GRANTOR ADDRESS] (the “Grantor”); and
• [TRUSTEE NAME], whose principal address is [TRUSTEE ADDRESS] (the “Trustee”).

1.2 Recitals

A. Grantor desires to establish an irrevocable special needs trust for the sole benefit of [BENEFICIARY NAME] (the “Beneficiary”), who has been determined to be disabled within the meaning of 42 U.S.C. § 1382c(a)(3).
B. Grantor intends that the Trust assets shall be used to supplement, and not to supplant, any governmental benefits or assistance for which the Beneficiary may otherwise be eligible.
C. The parties enter into this Trust Agreement pursuant to, and intending to comply with, the Pennsylvania Uniform Trust Act, 20 Pa.C.S. § 7701 et seq., and all applicable federal and state laws governing special needs trusts.
D. This is a third-party special needs trust: the Initial Trust Estate and all additions to the Trust consist exclusively of property belonging to the Grantor (or other third-party contributors), and no property of the Beneficiary shall be transferred to or accepted by the Trust. Because the Trust is not funded with the Beneficiary's own assets, it is not a "special needs trust" as that term is separately defined and regulated under 62 P.S. § 1414 (which governs first-party, self-settled trusts funded with a disabled beneficiary's own resources under 42 U.S.C. § 1396p(d)(4)(A)), and this Trust accordingly contains no Medicaid payback provision, no age-65 funding restriction, and is not subject to approval by the Department of Human Services' Office of General Counsel. If the Beneficiary's own assets (e.g., a settlement, inheritance, or retroactive benefits) are to be used to fund a trust for the Beneficiary, a separate first-party/self-settled special needs trust instrument satisfying 62 P.S. § 1414 and 42 U.S.C. § 1396p(d)(4)(A) must be used instead of this Agreement.

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.

1.3 Effective Date & Jurisdiction

This Trust shall become effective on the Effective Date and shall be governed by the laws of the Commonwealth of Pennsylvania (without regard to conflict-of-laws principles). The Court of Common Pleas exercises trust jurisdiction through its Orphans’ Court Division under 20 Pa.C.S. § 711, and venue is governed by § 722.

2. DEFINITIONS

For purposes of this Trust Agreement, capitalized terms shall have the meanings set forth below. Terms defined in this Section may be used in the singular or plural.

“Accounting” – A written report of the Trust’s receipts, disbursements, and investments for a stated accounting period.

“Beneficiary” – The individual identified in Section 1.2.A for whose sole benefit the Trust is established.

“Discretionary Distribution” – Any distribution of Trust assets that the Trustee, in its sole and absolute discretion, elects to make pursuant to Section 3.3.

“Government Assistance” – Any benefits, subsidies, or assistance programs conditioned upon means testing or financial eligibility, including but not limited to Supplemental Security Income (“SSI”) and Medicaid.

“Protected Trust Assets” – All corpus and income of the Trust, together with any accretions, substitutions, or additions thereto.

“Settlor” – Synonymous with Grantor.

“State Probate Court” – For purposes of this Agreement, the Orphans’ Court Division of the Court of Common Pleas in the county specified in Section 1.3.

“Supplemental Needs” – Those special or supplemental goods, services, and living expenses that are not provided by Government Assistance and that enhance the Beneficiary’s quality of life, including but not limited to medical equipment, therapies, educational expenses, transportation, and recreational activities.

“Trust” – The special needs trust created by this Trust Agreement.

“Trustee” – The person or entity serving as trustee, together with any successor trustee duly appointed in accordance with this Agreement.

3. OPERATIVE PROVISIONS

3.1 Establishment; Irrevocability

The Grantor hereby irrevocably transfers and assigns to the Trustee the property described in Schedule A (the “Initial Trust Estate”) to hold, manage, and distribute under the terms set forth herein. This Trust is irrevocable; the Grantor shall not have any power to alter, amend, revoke, or terminate the Trust, nor to direct distributions.

3.2 Purpose

The Trust is established solely to provide for the Supplemental Needs of the Beneficiary while preserving the Beneficiary’s eligibility for Government Assistance. No part of the Trust shall be construed to provide the Beneficiary with basic support or maintenance that would otherwise be provided by Government Assistance.

3.3 Distributions

a. Discretionary Standard
The Trustee may, in the Trustee’s sole and absolute discretion, make Discretionary Distributions of income and/or principal for the Beneficiary’s Supplemental Needs. The Beneficiary shall have no right to compel distributions.

b. Prohibited Distributions
(i) Distributions that would reduce or eliminate the Beneficiary’s eligibility for Government Assistance are prohibited.
(ii) Cash distributions directly to the Beneficiary are prohibited unless the Trustee first confirms, after consultation with qualified benefits counsel, that such distribution will not adversely affect eligibility.

c. Guidelines
The Trustee shall consider the following non-exclusive factors when evaluating a proposed distribution: (1) the nature and cost of the Supplemental Need; (2) the availability of alternative funding sources; (3) the expected duration of the Trust; and (4) the Beneficiary’s other resources.

3.4 Spendthrift Protection

Pursuant to 20 Pa.C.S. § 7742, the Trust is a discretionary spendthrift trust. The Beneficiary’s interest shall not be subject to alienation, assignment, pledge, attachment, or claims of creditors.

3.5 Trustee Powers

The Trustee shall have all powers granted under 20 Pa.C.S. § 7780.5 and any other applicable law, including but not limited to:

1. Investing and reinvesting Trust assets prudently;
2. Retaining non-productive property;
3. Leasing, selling, or exchanging assets;
4. Employing professional advisors at the expense of the Trust;
5. Compromising or settling claims; and
6. Executing any instruments reasonably necessary to implement Trust purposes.

3.6 Successor Trustees

a. Designation
[PRIMARY SUCCESSOR TRUSTEE] is hereby designated as first successor Trustee. If the successor Trustee is unable or unwilling to serve, the court of appropriate jurisdiction shall appoint a qualified corporate fiduciary with expertise in administering special needs trusts.

b. Acceptance & Assumption
A successor Trustee shall accept the trusteeship in writing and shall thereupon be vested with all rights, powers, and duties of the Trustee.

3.7 Trustee Compensation

The Trustee shall be entitled to reasonable compensation consistent with 20 Pa.C.S. § 7768 and prevailing fiduciary fee schedules, and to reimbursement for properly incurred expenses.

3.8 Trust Accounting

The Trustee shall provide an annual Accounting to the Beneficiary (or the Beneficiary’s legal representative), the Grantor (during the Grantor’s lifetime), and any guardian or court as may be required under Pennsylvania law.

4. REPRESENTATIONS & WARRANTIES

4.1 Grantor

a. Authority – Grantor represents that Grantor has full legal capacity, authority, and title to transfer the property listed in Schedule A.
b. No Prior Assignment – Grantor warrants that such property is not subject to any liens, encumbrances, or prior assignments that would defeat or impair the purposes of the Trust.

4.2 Trustee

a. Due Qualification – Trustee represents that Trustee is legally qualified and not disqualified or removed within the meaning of 20 Pa.C.S. § 7764(a) (relating to vacancy in trusteeship).
b. Fiduciary Standard – Trustee acknowledges the fiduciary duties imposed by Pennsylvania law, including the duty of loyalty and the prudent investor rule.

4.3 Survival

The representations and warranties set forth herein shall survive execution and remain in full force during the term of the Trust.

5. COVENANTS & RESTRICTIONS

1. Grantor shall provide all further assurances necessary to transfer legal title to the Trust assets.
2. Trustee shall adhere to all reporting and notice requirements imposed by any governmental agency with jurisdiction over the Beneficiary’s benefits.
3. Neither Grantor nor Beneficiary shall undertake any action that would compromise the Trust’s spendthrift protections or special needs purpose.

6. DEFAULT & REMEDIES

6.1 Events of Default

a. Trustee’s failure to provide an annual Accounting;
b. Breach of fiduciary duty as determined by a court of competent jurisdiction;
c. Use of Trust assets in a manner inconsistent with Section 3.2.

6.2 Notice & Cure

The Grantor (if living) or any qualified beneficiary (as defined under 20 Pa.C.S. § 7703) may issue written notice of an alleged default and allow a reasonable opportunity to respond. No notice or cure period delays relief available under 20 Pa.C.S. §§ 7766 and 7781 for an actual or threatened breach.

6.3 Remedies

a. Removal of Trustee under 20 Pa.C.S. § 7766;
b. Surcharge against the Trustee’s compensation;
c. Injunctive relief to prevent dissipation of Trust assets;
d. Any other remedy available at equity or law.

6.4 Attorney Fees

In any action to enforce this Trust, the prevailing party shall be entitled to reasonable attorney fees and costs, payable from the Trust unless the court directs otherwise.

7. RISK ALLOCATION

7.1 Indemnification

Trustee compensation and reimbursement are governed by 20 Pa.C.S. §§ 7768–7769. Any exculpatory term is subject to § 7788 and does not relieve a Trustee from liability for a breach committed in bad faith or with reckless indifference to the purposes of the Trust or the interests of the Beneficiaries.

7.2 Limitation of Liability

Contract, tort, and property-related liability are governed by 20 Pa.C.S. § 7790. This Agreement creates no blanket limitation of liability to Trust assets and does not protect a Trustee who is personally at fault.

7.3 Insurance

The Trustee is authorized, but not required, to purchase fiduciary liability insurance at Trust expense.

7.4 Force Majeure

The Trustee shall not be liable for delays or failures in performance caused by events beyond the Trustee’s reasonable control, including but not limited to natural disasters, governmental actions, or market disruptions.

8. DISPUTE RESOLUTION

8.1 Governing Law

This Trust is governed by the substantive laws of the Commonwealth of Pennsylvania, including the Pennsylvania Uniform Trust Act.

8.2 Forum Selection

Judicial proceedings concerning this Trust are subject to the jurisdiction and venue rules in 20 Pa.C.S. §§ 711 and 722.

8.3 Limited Arbitration

Administrative disputes may, by mutual written agreement of all affected parties, be submitted to mediation, arbitration, or another alternative procedure as permitted by 20 Pa.C.S. § 7780.6(2)–(3), without displacing mandatory court jurisdiction.

8.4 Injunctive Relief

Nothing in this Section impairs the right of an interested party to seek relief available from the Orphans’ Court Division under 20 Pa.C.S. § 7781.

9. GENERAL PROVISIONS

1. Amendments – This Trust may not be amended except by court order upon a showing that the amendment is consistent with the special needs purpose and permitted under 20 Pa.C.S. § 7740.2 (relating to modification or termination of a noncharitable irrevocable trust by court due to circumstances not anticipated by the Grantor, where modification will further the Trust's purposes).
2. Severability – If any provision is determined unenforceable, the remaining provisions shall remain in full force.
3. Assignment – No party may assign rights or delegate duties except as expressly provided.
4. Merger – This Trust Agreement embodies the entire understanding of the parties.
5. Counterparts – This Trust may be executed in one or more counterparts, each of which shall be deemed an original.
6. Electronic Signatures – Signatures executed and delivered electronically shall be deemed originals for all purposes to the fullest extent permitted by law.

10. EXECUTION BLOCK

IN WITNESS WHEREOF, the parties hereto have executed this Special Needs Trust Agreement as of the Effective Date.

ACKNOWLEDGMENT (Commonwealth of Pennsylvania)

State of Pennsylvania
County of ______________________

On this ____ day of __________, 20___ before me, the undersigned Notary Public, personally appeared ________________________________, known to me (or satisfactorily proven) to be the person(s) whose name(s) is/are subscribed to the foregoing instrument, and acknowledged that he/she/they executed the same for the purposes therein contained.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

_______________________________
Notary Public
My Commission Expires: _____________

SCHEDULE A

(Initial Trust Estate)

1. Cash: $[AMOUNT]
2. Securities: [DESCRIPTION]
3. Other Property: [DESCRIPTION]