Special Needs Trust - South Dakota

SOUTH DAKOTA DISCRETIONARY SUPPLEMENTAL (SPECIAL) NEEDS TRUST AGREEMENT

[Clean Template for Attorney Customization]

TABLE OF CONTENTS

1. Document Header
2. Definitions
3. Establishment of Trust & Funding
4. Purpose; Supplemental Needs Standard
5. Trust Administration
6. Distributions
7. Public Benefits Compliance
8. Trustee Provisions
9. Indemnification; Limitation of Liability
10. Records; Accounting; Inspection Rights
11. Default; Remedies
12. Governing Law; Forum; Dispute Resolution
13. General Provisions
14. Execution Block

1. DOCUMENT HEADER

1.1 Title and Parties

THIS SOUTH DAKOTA DISCRETIONARY SUPPLEMENTAL (SPECIAL) NEEDS TRUST AGREEMENT (this “Trust Agreement”) is made and entered into as of [EFFECTIVE DATE] (the “Effective Date”) by and among:

• [SETTLOR NAME(S)], an individual having an address at [ADDRESS] (“Settlor”);
• [PRIMARY TRUSTEE NAME], having an address at [ADDRESS] (“Trustee”); and
• [BENEFICIARY NAME], the individual beneficiary for whose exclusive benefit this Trust is established (the “Beneficiary”).

1.2 Recitals

A. Settlor desires to establish an irrevocable trust for the sole benefit of Beneficiary, whose eligibility for disability-based benefits will be determined under the applicable program rules.
B. The intent of Settlor is to preserve Beneficiary’s eligibility for means-tested public assistance programs, including Supplemental Security Income (“SSI”), Medicaid, and similar benefits, while providing for Beneficiary’s supplemental and special needs.
C. Trustee is willing to accept the trusteeship of this Trust in accordance with the terms set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Settlor hereby irrevocably establishes the following Trust on the terms and conditions below.

2. DEFINITIONS

Unless the context clearly requires otherwise, the following capitalized terms shall have the meanings set forth below:

“Accountant” – The independent certified public accountant engaged under Section 10.1.
“Applicable Law” – All federal, state, and local statutes, regulations, judicial decisions, and other legal requirements applicable to this Trust, including S.D. Codified Laws Title 55 and, for a first-party trust, 42 U.S.C. § 1396p(d)(4)(A).
“Beneficiary” – The person identified in Section 1.1 who meets the disability criteria under 42 U.S.C. § 1382c(a)(3).
“Disability Certification” – Documentation sufficient to establish Beneficiary’s disability under the applicable public-benefits program.
“Dispositive Provisions” – Articles relating to distributions, remainder interests, and termination.
“Expenses” – All costs, fees, taxes, assessments, penalties, and other charges reasonably incurred in administering the Trust.
“Protected Benefits” – Means-tested governmental assistance programs, including but not limited to SSI, Medicaid, SNAP, Section 8 housing, and any successor programs.
“Special Needs” – Needs not otherwise provided by public assistance, including but not limited to education, habilitation, transportation, recreation, adaptive equipment, therapies, and other items enhancing quality of life.
“Trust” – The irrevocable trust created by this Trust Agreement.
“Trust Assets” – All property, tangible or intangible, transferred to or acquired by the Trust, together with all reinvestments, proceeds, and accretions.
“Trust Estate” – Same meaning as Trust Assets.
“Trustee” – Each person or entity serving as trustee under this Trust Agreement, including any successor.

3. ESTABLISHMENT OF TRUST & FUNDING

3.1 Irrevocable Trust. The Trust is irrevocable. Except as expressly provided herein or by non-waivable law, Settlor retains no right or power, whether alone or in conjunction with another, to alter, amend, revoke, or terminate the Trust, or to direct the disposition of Trust Assets.

3.2 Initial Funding. Settlor hereby transfers and delivers to Trustee the property described on Schedule A (the “Initial Contribution”) to the extent the transfer is completed on execution. For any asset requiring a separate transfer or title document, Settlor and Trustee shall complete that document and record the transfer date on Schedule A. Listing an asset alone does not confirm that its transfer has occurred.

3.3 Additional Contributions. Trustee may accept additional property only after determining its ownership and whether the transfer is consistent with the option selected in Section 3.4. Trustee shall keep records identifying the source of each contribution and shall reject a contribution that would defeat that option or Beneficiary's benefits treatment. For the first-party option, additions after Beneficiary reaches age 65 generally do not qualify for the special-needs-trust exception under SSA POMS SI 01120.203B.3; Trustee shall obtain benefits review before accepting any proposed later contribution.

3.4 Characterization. [SELECT ONE]
☐ Third-Party Trust – The Settlor contributes assets belonging neither to Beneficiary nor to Beneficiary's spouse. The first-party Medicaid payback clause in Section 7.4 does not apply to those assets.
☐ First-Party Trust – The assets contributed belong to Beneficiary. Beneficiary must be disabled within 42 U.S.C. § 1382c(a)(3) and under age 65 when this trust is established; the trust must be established for Beneficiary by Beneficiary, a parent, grandparent, legal guardian, or a court; and Section 7.4's Medicaid payback clause applies. Identify the permitted establisher and the authority to transfer Beneficiary's property: [____________________________________].

For SSI purposes, assets of Beneficiary's spouse are not third-party assets under SSA POMS SI 01120.200. The Trustee shall not accept them under the third-party option; refer any proposed contribution for separate benefits analysis. Do not mix first-party assets into the third-party option.

4. PURPOSE; SUPPLEMENTAL NEEDS STANDARD

4.1 Primary Purpose. The paramount purpose of this Trust is to supplement, and not to supplant or replace, any Protected Benefits to which Beneficiary may be, or may become, entitled. Distributions shall be made solely in a manner and to an extent that does not disqualify or reduce Beneficiary’s Protected Benefits, unless Trustee determines that such distribution is in Beneficiary’s best interests notwithstanding any consequential reduction or loss of benefits.

4.2 No Fixed Support Distribution. This instrument does not require a fixed support distribution. It does not alter any support obligation imposed independently by law or limit the Trustee's fiduciary duties.

4.3 Spendthrift Protection. To the maximum extent permitted by Applicable Law, all interests of Beneficiary are held subject to a spendthrift trust. Beneficiary shall have no power to anticipate, assign, pledge, encumber, or transfer any interest in the Trust, and such interests shall be protected from creditor claims to the extent permitted by law.

5. TRUST ADMINISTRATION

5.1 General Powers. Subject to the terms hereof, Trustee shall have all powers granted to a trustee under S.D. Codified Laws § 55-1A-1 et seq. (Trustees' Powers) and any successor provisions, including the power to retain, invest, reinvest, sell, lease, or otherwise manage Trust Assets.

5.2 Investment Standard. Trustee shall invest and manage the Trust Assets as a prudent investor in accordance with S.D. Codified Laws §§ 55-5-6 and 55-5-7, taking into account Beneficiary’s supplemental needs, tax considerations, liquidity requirements, and anticipated duration of the Trust.

5.3 Delegation. Trustee may delegate investment and management functions to qualified professionals only as a prudent person would, and shall select and monitor any agent. Trustee may seek prior written approval for delegation as described in S.D. Codified Laws § 55-5-16.

5.4 Bond. ☐ The Trustee shall post a fiduciary bond in the amount of [$_________] as required by [COURT ORDER / APPLICABLE LAW / THIS AGREEMENT]. Any waiver or change to that requirement must follow the governing order or law. ☐ No bond term is imposed by this Agreement.

5.5 Compensation. Trustee is entitled to reasonable compensation for services rendered under SDCL § 55-3-14 and to reimbursement of properly incurred Expenses, all payable from the Trust Assets.

6. DISTRIBUTIONS

6.1 Discretionary Distributions. Subject to Article 7 and applicable fiduciary law, Trustee shall decide whether, when, and how much income or principal to distribute for Beneficiary’s Special Needs. Beneficiary has no right under this instrument to demand a fixed distribution; this clause does not bar judicial review of Trustee conduct.

6.2 Non-support Uses. Distributions may include, but are not limited to, the purchase of medical equipment, home modifications, educational expenses, companion services, travel, recreation, and any other expenditures enhancing Beneficiary’s well-being. Trustee shall endeavor to pay vendors directly whenever practicable.

6.3 Distributions Affecting Benefits. Trustee shall evaluate cash and shelter payments under the applicable benefits rules before making them. Direct payments for Beneficiary's food are not counted as SSI in-kind support and maintenance under the SSA rule effective September 30, 2024; a cash distribution remains subject to income rules even if Beneficiary intends to buy food with it. Trustee may make a distribution that reduces a benefit only if Trustee determines it serves Beneficiary's interests after considering that effect.

6.4 Emergency Distributions. In the event of an emergency threatening Beneficiary’s health or safety, Trustee may distribute Trust Assets even if such distribution adversely affects Protected Benefits, provided Trustee documents the rationale for such action.

6.5 Remainder Beneficiaries. Upon the death of Beneficiary, remaining Trust Assets shall be distributed in accordance with Article 7 (first-party) or Article 13 (third-party).

7. PUBLIC BENEFITS COMPLIANCE

7.1 Federal Statutory Compliance. If the first-party option in Section 3.4 is selected, this Trust is intended to meet 42 U.S.C. § 1396p(d)(4)(A). If the third-party option is selected, that first-party statutory exception is not the Trust's basis for treatment of its assets. Trustee shall administer the Trust consistently with the selected funding source and applicable benefits rules.

7.2 Notifications. Trustee shall provide any notices required by Medicaid, Social Security Administration, or other agencies regarding the establishment or funding of the Trust.

7.3 Distribution Reporting. Trustee shall maintain detailed records of all distributions and make timely reports as required by Applicable Law or agency regulation.

7.4 Payback Provision (First-Party Only). [Include only if Section 3.4 designates a first-party trust.]
Upon Beneficiary’s death, each state that furnished medical assistance under its Medicaid plan shall be a first payee from all amounts remaining in the Trust, up to the total medical assistance paid on Beneficiary's behalf under that state's plan, without limiting the period of assistance. Before that reimbursement, Trustee may pay only taxes due from the Trust because of Beneficiary's death and reasonable expenses necessary to administer and terminate the Trust, to the extent permitted by applicable benefits rules. If the remaining Trust Assets are insufficient to reimburse all such states, Trustee shall allocate them proportionally among the states. No residual beneficiary or other creditor shall be paid before this reimbursement except as those rules permit.

7.5 Residual Distribution. For a first-party trust, after Section 7.4 has been satisfied, any remaining Trust Assets shall be distributed to [REMAINDER BENEFICIARIES]. For a third-party trust, remaining assets shall be distributed to [REMAINDER BENEFICIARIES] under this Trust's terms, subject to applicable law.

7.6 Audit Cooperation. Trustee shall cooperate fully with any governmental audit or review of Trust administration relating to Beneficiary’s Protected Benefits.

8. TRUSTEE PROVISIONS

8.1 Acceptance. By executing this Trust Agreement, Trustee accepts the fiduciary obligations herein.

8.2 Successor Trustees. [NAME OR MECHANISM FOR APPOINTMENT] shall serve as successor trustee upon the resignation, incapacity, or removal of Trustee. Any successor trustee shall have all rights, powers, and duties of the original Trustee.

8.3 Removal and Resignation. Subject to applicable law and any first-party benefits requirements, Settlor (if living) may seek a Trustee's removal for cause. Under SDCL § 55-3-20, the circuit court may remove a trustee who has violated or is unfit to execute the trust and may fill a vacancy when this instrument supplies no practicable method. For this irrevocable trust, a resigning Trustee shall give at least 30 days' notice to the living Settlor, all fiduciaries, designated successors, persons empowered to appoint a successor, and known qualified beneficiaries entitled to notice under SDCL § 55-3-17.1(2), or obtain court approval.

8.4 Trustee Indemnity. See Section 9.1.

8.5 Co-Trustees. If two trustees serve concurrently, both must concur in a decision. If three or more serve, they shall act by majority decision unless otherwise provided herein, by applicable law, or by court order. A co-trustee may seek court direction if a deadlock prevents administration.

9. INDEMNIFICATION; LIMITATION OF LIABILITY

9.1 Trustee Reimbursement. Trustee may be reimbursed from Trust Assets for reasonable expenses properly incurred in good-faith administration, subject to applicable fiduciary law. This clause does not reimburse a breach of duty or excuse liability that cannot lawfully be excused.

9.2 Liability. Trustee's liability for conduct in administering this Trust is determined by applicable fiduciary law and any enforceable limitation in this Trust Agreement. Under SDCL § 55-4-30, no provision relieves the Trustee of liability for breach of trust committed in bad faith or through gross negligence, or of duties imposed by §§ 55-4-10 through 55-4-12.

9.3 Insurance. Trustee may purchase fiduciary liability insurance, the premiums of which shall be payable from Trust Assets.

10. RECORDS; ACCOUNTING; INSPECTION RIGHTS

10.1 Annual Accounting. Trustee shall prepare, or cause to be prepared by the Accountant, an annual statement of transactions, receipts, disbursements, and assets on hand, and shall deliver it to Beneficiary (or an authorized representative) and any remainder beneficiary entitled to it under this Agreement or Applicable Law. This clause does not limit a qualified beneficiary's information rights under SDCL § 55-2-13 or the content required for an accounting under § 55-3-45.

10.2 Interim Statements. Trustee shall provide interim reports to government agencies as often as applicable program rules require and shall respond to reasonable requests from persons entitled to information under this Agreement or Applicable Law.

10.3 Inspection of Records. Beneficiary (or Beneficiary’s legal representative) may, upon reasonable notice, inspect the books and records of the Trust during normal business hours.

10.4 Judicial Accounting. Trustee may petition a South Dakota circuit court with jurisdiction for review or settlement of accounts where applicable law permits.

11. DEFAULT; REMEDIES

11.1 Events of Default. The following constitute Events of Default:
(a) Trustee’s willful refusal or failure to administer the Trust in accordance with this Trust Agreement;
(b) Material breach of fiduciary duty causing demonstrable harm to Beneficiary;
(c) Misappropriation of Trust Assets; or
(d) Bankruptcy or insolvency of Trustee.

11.2 Notice and Cure. An interested party may provide written notice describing a breach and request a response or cure within 30 days. This contractual process does not delay an urgent court application or restrict remedies available under applicable law.

11.3 Remedies. Upon an Event of Default, whether or not notice has been given or a requested cure period has run:
(a) An interested party may petition a South Dakota circuit court with jurisdiction to remove Trustee and, when this instrument supplies no practicable replacement method, appoint a successor under SDCL § 55-3-20;
(b) A petitioner may request an accounting, surcharge, recovery of misappropriated assets, injunctive relief, or another remedy available under applicable law;
(c) A petitioner may request reasonable fees and costs; the court determines any award and its source under applicable law and this Trust Agreement.

12. GOVERNING LAW; FORUM; DISPUTE RESOLUTION

12.1 Governing Law. This Trust Agreement and all rights, duties, and obligations arising hereunder shall be governed by and construed in accordance with the internal laws of the State of South Dakota (“State Trust Law”), without regard to its conflict-of-laws principles.

12.2 Forum. Subject to applicable jurisdiction and venue law, the parties submit trust administration disputes to the Circuit Court for [INSERT COUNTY] County, South Dakota (the “Court”).

12.3 Voluntary Mediation. Interested persons may agree to mediate a trust dispute in [CITY], South Dakota. This clause does not require arbitration or restrict a person from seeking relief in a court with jurisdiction.

12.4 Injunctive Relief. Nothing herein shall limit the Court’s power to grant temporary, preliminary, or permanent injunctive relief to protect the Trust Estate or enforce fiduciary obligations.

12.5 Trial Procedure. Any right to a jury trial is governed by applicable law and the nature of the particular claim.

13. GENERAL PROVISIONS

13.1 Amendment. This Trust is irrevocable. Modification or termination must follow an available procedure under SDCL § 55-3-24 or other applicable law, including its consent, notice, and material-purpose requirements where applicable. If the first-party option is selected, any modification must preserve the requirements of 42 U.S.C. § 1396p(d)(4)(A) and Section 7.4.

13.2 Merger. This Trust Agreement supersedes all prior understandings relating to the subject matter hereof and constitutes the entire agreement among the parties. There are no representations or warranties other than those expressly set forth herein.

13.3 Severability. If any provision of this Trust Agreement is determined to be invalid or unenforceable, the remaining provisions shall remain in full force and effect, and the invalid provision shall be construed so as to effectuate its original intent to the greatest extent lawful.

13.4 No Waiver. No failure or delay by any party in exercising any right or remedy shall operate as a waiver thereof; nor shall any single or partial exercise of any right preclude any other or further exercise thereof.

13.5 Headings; Construction. Headings are for convenience only and shall not affect interpretation. Pronouns and nouns shall be deemed to include the masculine, feminine, neuter, singular, and plural, as context requires.

13.6 Counterparts; Electronic Signatures. This Trust Agreement may be executed in counterparts, each of which forms part of one instrument. Electronic signatures may be used only to the extent accepted under applicable law for this trust and any property-transfer documents.

13.7 Successors and Assigns. This Trust Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

14. EXECUTION BLOCK

IN WITNESS WHEREOF, Settlor and Trustee have executed this South Dakota Discretionary Supplemental Needs Trust Agreement as of the Effective Date first written above.

14.1 Settlor

_______________________________
[SETTLOR NAME]
Date: _________________________

14.2 Trustee

_______________________________
[TRUSTEE NAME]
Date: _________________________

14.3 Acknowledgment

State of South Dakota )
County of ____________ ) ss.

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 names are subscribed to the foregoing instrument, and acknowledged that 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 Contribution

[LIST OF ASSETS TRANSFERRED TO TRUST]