Special Needs Trust - Tennessee

**SPECIAL NEEDS TRUST AGREEMENT

(State of Tennessee)**

TABLE OF CONTENTS

1. Article I – Trust Formation, Purpose & Recitals
2. Article II – Definitions
3. Article III – Irrevocability; Trust Estate; Funding
4. Article IV – Discretionary Supplemental Needs Distributions
5. Article V – Preservation of Government Benefits
6. Article VI – Trustee Powers, Duties & Standards of Care
7. Article VII – Representations & Warranties
8. Article VIII – Covenants & Restrictions
9. Article IX – Defaults, Removal & Succession of Fiduciaries
10. Article X – Risk Allocation; Indemnification & Liability Review
11. Article XI – Accounting, Records & Tax Matters
12. Article XII – Dispute Resolution
13. Article XIII – General Provisions
14. Article XIV – Execution & Acknowledgment

**ARTICLE I

TRUST FORMATION, PURPOSE & RECITALS**

1.1 Parties

(a) Settlor/Grantor: [SETTLOR FULL LEGAL NAME], residing at [ADDRESS].
(b) Trustee: [TRUSTEE FULL LEGAL NAME], with principal address at [ADDRESS].
(c) Primary Beneficiary: [DISABLED BENEFICIARY NAME], Social Security No. [LAST-4 SSN].

1.2 Effective Date

This Special Needs Trust (“Trust”) is executed on [EFFECTIVE DATE] and shall be effective immediately upon execution and funding.

1.3 Governing Law & Situs

This Trust shall be governed by and construed in accordance with the Tennessee Uniform Trust Code, Tenn. Code Ann. § 35-15-101 et seq., and applicable federal law, including 42 U.S.C. § 1396p(d)(4)(A) where relevant. The principal place of administration shall be [COUNTY], Tennessee, unless changed pursuant to Section 6.4.

1.4 Purpose; Special Needs Intent

The purpose of this Trust is to hold, manage, and distribute the Trust Estate for the sole benefit of the Beneficiary in a manner that:
(i) enhances quality of life, comfort, and well-being; and
(ii) preserves eligibility for means-tested public benefits such as Supplemental Security Income (“SSI”) and Medicaid/TennCare.

The Trust shall be administered as a “supplemental needs trust” and not as a basic support trust.

**ARTICLE II

DEFINITIONS**

“Accounting Period” – Each calendar year ending December 31, unless the Trustee selects another fiscal year for tax purposes.

“Applicable State Medicaid Agency” – The Tennessee Bureau of TennCare or any successor agency.

“Beneficiary” – The individual identified in Section 1.1(c) who is deemed disabled under 42 U.S.C. § 1382c(a)(3).

“Co-Trustee” – Any person or institution serving concurrently with the initial Trustee pursuant to Section 9.3.

“Discretionary Distribution” – A distribution made in the Trustee’s sole, absolute, and uncontrolled discretion, subject to Article IV.

“Means-Tested Benefits” – SSI, Medicaid/TennCare, SNAP, Section 8 Housing, or any similar program requiring asset or income eligibility.

“Supplemental Needs” – Needs that are not provided for, or are only partially provided for, by Means-Tested Benefits, including but not limited to personal care services, education, recreation, transportation, and out-of-pocket medical expenses.

“Trust Estate” – All property, real or personal, tangible or intangible, and any accumulations or additions thereto, held from time to time by the Trustee under this Agreement.

**ARTICLE III

IRREVOCABILITY; TRUST ESTATE; FUNDING**

3.1 Irrevocability

This Trust is irrevocable. The Settlor expressly relinquishes all rights, title, and interest in the Trust Estate except the limited rights reserved herein.

3.2 Contributions

(a) Initial Funding: [DESCRIPTION OF INITIAL ASSETS OR “One dollar ($1.00) and other valuable consideration”].
(b) Additional Contributions: Permitted at any time by the Settlor or third parties, provided such contributions do not violate Means-Tested Benefits rules.

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.

3.3 Spendthrift & Non-Assignment

The interests of the Beneficiary are held subject to a spendthrift trust as defined in Tenn. Code Ann. § 35-15-502. No interest shall be transferable or subject to creditor claims until actually distributed.

**ARTICLE IV

DISCRETIONARY SUPPLEMENTAL NEEDS DISTRIBUTIONS**

4.1 Sole Benefit Standard

All distributions must be for the sole benefit of the Beneficiary.

4.2 Trustee’s Absolute Discretion

Notwithstanding any other provision, the Trustee may (but is never required to) make Discretionary Distributions for Supplemental Needs. The Beneficiary shall have no right to compel distributions.

4.3 Prohibited Distributions

The Trustee shall not:
(a) Make direct cash distributions to the Beneficiary;
(b) Pay for shelter-related expenses (e.g., rent, mortgage, real property taxes, or utilities) without first considering the resulting in-kind support and maintenance (“ISM”) reduction under the Social Security Administration’s Value of the One-Third Reduction and Presumed Maximum Value rules. (Food is not counted as ISM: under the SSA final rule "Omitting Food From In-Kind Support and Maintenance Calculations," 89 Fed. Reg. 21191 (Mar. 27, 2024), effective September 30, 2024, food purchased or provided by the Trustee no longer reduces the Beneficiary's SSI payment and is not a restricted distribution under this subsection.);
(c) Act in any manner inconsistent with the POMS or successor agency guidance.

4.4 Consideration of Alternative Resources

The Trustee may require the Beneficiary to apply for or maintain Means-Tested Benefits before making Discretionary Distributions.

**ARTICLE V

PRESERVATION OF GOVERNMENT BENEFITS**

5.1 Compliance with Federal & State Law

The Trust shall be administered in conformity with 42 U.S.C. § 1396p and relevant Social Security Administration policies. The Trustee shall consult competent benefits counsel as necessary.

5.2 Reporting Requirements

The Trustee shall provide accountings, statements, or certifications to the Social Security Administration, TennCare, or other agencies as required.

5.3 Medicaid Reimbursement (First-Party Funding ONLY)

[OPTION 1 – INCLUDE ONLY if this Trust is funded, in whole or in part, with the Beneficiary’s own assets (a first-party/self-settled special needs trust). To qualify for the resource exclusion under 42 U.S.C. § 1396p(d)(4)(A), the Trust must be irrevocable, must be established for a Beneficiary who is disabled (as defined in 42 U.S.C. § 1382c(a)(3)) and under age sixty-five (65) at the time of establishment and funding, and must be established by the Beneficiary’s parent, grandparent, legal guardian, the Beneficiary (to the extent permitted by applicable law), or a court.]
Upon the death of the Beneficiary, or upon earlier termination of the Trust, the Trustee shall reimburse the Applicable State Medicaid Agency, up to the remaining Trust balance, for medical assistance paid on behalf of the Beneficiary after the Trust's creation, before paying any remainder beneficiaries, as required by 42 U.S.C. § 1396p(d)(4)(A).
[OPTION 2 – OMIT this entire Section 5.3 if the Trust is funded solely with assets of a third party (a third-party/supplemental needs trust); no Medicaid payback obligation applies to a third-party trust.]

**ARTICLE VI

TRUSTEE POWERS, DUTIES & STANDARDS OF CARE**

6.1 Fiduciary Standard

The Trustee shall administer the Trust as a prudent person would, consistent with Tenn. Code Ann. § 35-15-804, except as otherwise specifically provided.

6.2 Enumerated Powers

Subject to Article V, the Trustee may:
(a) Invest and reinvest in any prudent asset;
(b) Employ professionals and delegate investment functions pursuant to Tenn. Code Ann. § 35-15-807;
(c) Purchase real or personal property for Beneficiary’s use;
(d) Establish or contribute to an ABLE account under 26 U.S.C. § 529A;
(e) Execute any documents necessary to carry out Trust purposes.

6.3 Bond & Compensation

Bond is [WAIVED/REQUIRED] unless ordered by a court. Trustee compensation shall be [PERCENTAGE] % of Trust income/principal or as otherwise agreed in writing.

6.4 Change of Situs

The Trustee may transfer the situs to another jurisdiction if necessary to protect benefits eligibility or for more favorable trust administration law, after 30 days’ written notice to the Protector (if any) and the Beneficiary’s legal representative.

**ARTICLE VII

REPRESENTATIONS & WARRANTIES**

7.1 Settlor Representations

(a) Settlor has full right, title, and authority to transfer the assets described in Section 3.2.
(b) No creditor claims, liens, or encumbrances exist that would defeat the transfer.

7.2 Trustee Representations

(a) Trustee has reviewed this Agreement and accepts the fiduciary obligations herein.
(b) Trustee has no conflict of interest that would materially impair administration.

7.3 Survival

The representations and warranties in this Article survive the transfer of assets and the resignation or removal of any fiduciary.

**ARTICLE VIII

COVENANTS & RESTRICTIONS**

8.1 Trustee Covenants

(a) Maintain adequate liability insurance covering Trust administration.
(b) Provide annual accountings within 90 days after the close of each Accounting Period to the Beneficiary’s legal representative and, upon request, to the Protector or court.

8.2 Negative Covenants

The Trustee shall not (i) lend Trust assets to the Settlor or Beneficiary, (ii) use Trust assets as security for debts of third parties, or (iii) commingle Trust assets with non-trust property.

8.3 Notice & Cure

In the event of an alleged breach, written notice must be delivered specifying the breach. The Trustee shall have 30 days to cure before any remedy in Article IX is invoked.

**ARTICLE IX

DEFAULTS, REMOVAL & SUCCESSION OF FIDUCIARIES**

9.1 Events of Default

(a) Failure to administer for the Beneficiary’s sole benefit;
(b) Failure to render required accountings;
(c) Self-dealing or gross negligence.

9.2 Remedies

Upon an uncured Event of Default, any interested party may petition the court described in Section 12.2 for:
(i) removal of the Trustee,
(ii) surcharge for damages, and/or
(iii) injunctive relief compelling proper administration.

9.3 Successor Trustees

[PRIMARY SUCCESSOR TRUSTEE NAME] is nominated as first successor. Further successor order: [SECOND SUCCESSOR] → [THIRD SUCCESSOR]. Each successor must accept in writing and shall have all the powers of the original Trustee.

**ARTICLE X

RISK ALLOCATION; INDEMNIFICATION & LIABILITY REVIEW**

10.1 Indemnification Review

This template creates no blanket indemnity. Counsel must identify the proposed covered claim, conduct, beneficiary, third party, expense, defense control, source of payment, and mandatory-law limit before adding an indemnification term.

10.2 Personal-Liability Classification

No all-claims Trust Estate cap applies. Tenn. Code Ann. § 35-15-1010 separately addresses disclosed fiduciary-capacity contracts, obligations arising from ownership, management, or control of trust property, and torts. Counsel must classify the claim before relying on that section.

10.3 Exculpation

Any proposed term relieving liability for breach of trust must be reviewed under Tenn. Code Ann. § 35-15-1008, including its bad-faith, reckless-indifference, relationship-abuse, fairness, and communication limits.

**ARTICLE XI

ACCOUNTING, RECORDS & TAX MATTERS**

11.1 Tax Identification

The Trust shall obtain a separate EIN and file federal and state fiduciary returns as required.

11.2 Accounting Method

The Trustee shall maintain records on an accrual [or cash] basis consistent with generally accepted accounting principles for trusts.

11.3 Audit Rights

The Beneficiary (or legal representative) may, upon 30 days’ written notice, inspect the Trust’s books and records during normal business hours.

**ARTICLE XII

DISPUTE RESOLUTION**

12.1 Governing Law

This Agreement is governed by the laws of the State of Tennessee.

12.2 Required Forum

Proceedings brought by the Trustee or a Beneficiary concerning the administration of this Trust shall be brought in the Chancery Court of [COUNTY] County, Tennessee (or, in a county maintaining a separate court of probate jurisdiction, such as Davidson or Shelby County, that court), which has jurisdiction to the exclusion of all other courts under Tenn. Code Ann. § 35-15-203(1). Other proceedings involving this Trust are subject to the concurrent jurisdiction of other courts of record in this state under Tenn. Code Ann. § 35-15-203(2). Venue shall be as provided in Tenn. Code Ann. § 35-15-204.

12.3 Limited Arbitration

(a) Internal administrative disputes between co-trustees or between Trustee and Protector only shall be resolved by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (“AAA”).
(b) Matters affecting government benefits eligibility, or requiring court approval, are expressly excluded from arbitration.
(c) Any arbitration award may be confirmed in the court described in Section 12.2.

12.4 Injunctive Relief

Nothing herein limits the right of any interested party to seek injunctive or equitable relief in the court described in Section 12.2 to preserve the Trust Estate or enforce fiduciary duties.

12.5 Jury Trial Waiver

To the extent permitted in probate matters, the parties knowingly waive the right to a jury trial for any controversy relating to this Trust.

**ARTICLE XIII

GENERAL PROVISIONS**

13.1 Amendment & Reformation

This Trust may not be amended except (i) by court order to maintain federal or state benefits compliance, or (ii) by nonjudicial settlement in strict accordance with Tenn. Code Ann. § 35-15-111, provided the amendment does not impair the Beneficiary’s eligibility.

13.2 Severability

If any provision is held invalid, the remainder shall be interpreted to best fulfill the Trust’s intent and the Beneficiary’s continued benefits eligibility.

13.3 Entire Agreement

This document constitutes the entire agreement between the parties with respect to the Trust and supersedes all prior understandings.

13.4 Counterparts; Electronic Signatures

This Trust may be executed in counterparts, each deemed an original. Signatures delivered via electronic means shall be deemed effective to the fullest extent permitted by law.

**ARTICLE XIV

EXECUTION & ACKNOWLEDGMENT**

IN WITNESS WHEREOF, the Settlor and Trustee have executed this Special Needs Trust Agreement on the date first written above.

NOTARY ACKNOWLEDGMENT

State of Tennessee )
County of __________)

On this ___ day of __________, 20__, before me, the undersigned authority, personally appeared ____________________________, known to me (or satisfactorily proven) to be the person(s) whose name(s) are subscribed to the within 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: __________