THIRD-PARTY SUPPLEMENTAL NEEDS TRUST AGREEMENT
(Vermont Irrevocable Special Needs Trust)
[// GUIDANCE: This court-ready template is designed for a Vermont domiciled Settlor who wishes to establish a third-party supplemental (special) needs trust for the benefit of a person with a disability. Customize all placeholders, confirm statutory cross-references, and obtain tax and public-benefit advice before execution.]
TABLE OF CONTENTS
- Article I. Definitions
- Article II. Trust Creation; Funding; Purpose
- Article III. Beneficial Interest & Distribution Standard
- Article IV. Trustee Powers & Duties
- Article V. Representations & Warranties
- Article VI. Covenants & Restrictions
- Article VII. Events of Default; Remedies
- Article VIII. Risk Allocation
- Article IX. Dispute Resolution
- Article X. General Provisions
- Article XI. Execution Block
PREAMBLE & RECITALS
THIS IRREVOCABLE TRUST AGREEMENT (“Agreement”) is entered into and made effective as of [EFFECTIVE DATE] (“Effective Date”) by and among:
(A) [SETTLOR LEGAL NAME], of [SETTLOR ADDRESS] (“Settlor”);
(B) [TRUSTEE LEGAL NAME], of [TRUSTEE ADDRESS] (“Trustee”); and
(C) [BENEFICIARY LEGAL NAME], a person with a disability as defined herein (“Beneficiary”).
WHEREAS, Settlor desires to establish a discretionary, third-party supplemental needs trust governed by Vermont law to provide for the Beneficiary without disqualifying or diminishing Beneficiary’s eligibility for needs-based government assistance programs;
WHEREAS, Trustee is willing to accept the trust and perform its obligations in accordance with the terms herein;
NOW, THEREFORE, in consideration of the mutual covenants herein and other good and valuable consideration, the parties agree as follows:
ARTICLE I. DEFINITIONS
The following capitalized terms shall have the meanings set forth below. All cross-references are to Articles of this Agreement unless otherwise noted.
1.1 “Agreement” – this Third-Party Supplemental Needs Trust Agreement, including all Schedules and any duly executed amendments.
1.2 “Applicable Law” – the Vermont Uniform Trust Code, as amended, all other Vermont statutes regulating trusts, and, to the extent relevant, 42 U.S.C. § 1396p(d)(4)(A) and all successor federal regulations governing Medicaid and Supplemental Security Income (“SSI”).
1.3 “Beneficiary” – the individual identified above who, at the Effective Date, has been determined to be disabled as defined in 42 U.S.C. § 1382c(a)(3).
1.4 “Distribution” – any payment, expenditure, or transfer of Trust income or principal.
1.5 “Government Assistance Programs” – means-tested or needs-based public benefits, including but not limited to Medicaid, SSI, Supplemental Nutrition Assistance Program (“SNAP”), Section 8 housing assistance, and comparable state or federal programs.
1.6 “Protected Trust Property” – all property, real or personal, tangible or intangible, together with the income therefrom, transferred to the Trust by Settlor or any other permissible contributor and accepted by Trustee.
1.7 “Special Needs” – those supplemental goods and services that are not otherwise provided by Government Assistance Programs, including but not limited to medical, educational, rehabilitative, therapeutic, recreational, or quality-of-life expenses, as further described in Section 3.2.
1.8 “Trust” – the fiduciary relationship created by this Agreement and the corpus comprising the Protected Trust Property.
1.9 “Trustee” – the person or entity acting in such capacity from time to time under this Agreement, together with any successor or co-trustee duly appointed.
[// GUIDANCE: Add or delete defined terms to suit the factual scenario. Maintain alphabetical order.]
ARTICLE II. TRUST CREATION; FUNDING; PURPOSE
2.1 Creation. Settlor hereby irrevocably transfers, conveys, and assigns to Trustee the property described on Schedule A, to hold in trust, in accordance with this Agreement.
2.2 Irrevocability. This Trust is irrevocable. Settlor expressly waives all rights and powers, whether alone or in conjunction with others, to alter, amend, revoke, or terminate the Trust, except as specifically allowed in Section 10.3 (Limited Amendments).
2.3 Additional Contributions. Third-party contributions may be made to the Trust at any time with Trustee’s written consent, provided such contributions do not invalidate Beneficiary’s eligibility for Government Assistance Programs. Under no circumstances may the Beneficiary contribute his or her own assets to this Trust.
2.4 Purpose. The primary intent is to supplement, not supplant, Government Assistance Programs and to enhance the Beneficiary’s quality of life in a manner consistent with 42 U.S.C. § 1396p(d)(4)(A) and applicable Vermont law.
ARTICLE III. BENEFICIAL INTEREST & DISTRIBUTION STANDARD
3.1 Discretionary Distributions. Trustee shall have sole, absolute, and unfettered discretion to make or withhold Distributions of income or principal for the Beneficiary’s Special Needs. No Distribution shall be mandatory nor subject to any ascertainable standard of health, education, support, or maintenance.
3.2 Permissible Special Needs. Without limiting Trustee’s discretion, permissible Distributions may include:
(a) medical or dental services not covered by Government Assistance Programs;
(b) educational or vocational services;
(c) adaptive equipment, assistive technology, service animals, home modifications, and transportation;
(d) personal care attendants or respite services;
(e) recreational, cultural, or social activities that improve quality of life; and
(f) such other goods and services as Trustee deems advisable to promote the Beneficiary’s comfort and happiness.
3.3 Prohibited Payments. Trustee shall not make any Distribution that the Trustee knows or reasonably should know would:
(a) be counted as the Beneficiary’s “income” or “resource” under 20 C.F.R. Part 416, except to the extent that such Distributions result in no more than a permissible reduction of SSI benefits;
(b) discharge a legal support obligation of any person;
(c) reimburse the Beneficiary directly for cash expenditures; or
(d) otherwise jeopardize eligibility for Government Assistance Programs.
3.4 Trustee Guidance. Trustee may rely on written opinions from qualified counsel or benefits specialists regarding the impact of any proposed Distribution. The reasonable cost of such opinions shall be charged to the Trust.
3.5 Spendthrift Protection. The Beneficiary’s interest is held subject to a spendthrift provision under 14A V.S.A. § 502. The interest shall not be subject to voluntary or involuntary alienation, assignment, or encumbrance.
3.6 Termination on Beneficiary’s Death. Upon the Beneficiary’s death, the Trust shall terminate and Trustee shall distribute the remaining Trust corpus to the remainder beneficiaries identified in Schedule B, free of trust. No Medicaid pay-back is required because the Trust is funded exclusively with third-party assets.
ARTICLE IV. TRUSTEE POWERS & DUTIES
4.1 General Powers. To accomplish the Trust’s purpose, Trustee shall have all powers granted under Applicable Law, including but not limited to the powers enumerated in 14A V.S.A. § 815, as well as those set out below.
4.2 Enumerated Powers. Trustee may, in its discretion:
(a) retain, invest, reinvest, or sell Trust assets in accordance with the Vermont Prudent Investor Rule;
(b) employ professionals (attorneys, accountants, investment advisers, benefits specialists) and pay their reasonable fees from the Trust;
(c) prosecute or defend claims in any court or arbitration forum;
(d) adjust between income and principal;
(e) make Distributions in cash or in kind;
(f) execute, acknowledge, and deliver any instrument necessary or convenient to carry out the Trust purposes.
4.3 Accounting & Reporting. Trustee shall provide at least annual written accountings to the Beneficiary (or the Beneficiary’s legal guardian) and any party entitled to receive such accountings under Vermont law.
4.4 Bond. [SELECT ONE: (a) Trustee shall serve without bond. –OR– (b) Trustee shall post a bond in the penal sum of $[AMOUNT] as may be required by the Probate Division of the Vermont Superior Court.]
4.5 Resignation & Removal.
(a) Resignation. The Trustee may resign upon 60 days’ written notice to Settlor (if living) and the Beneficiary, or upon court approval.
(b) Removal. A court of competent jurisdiction or the person(s) listed in Schedule C may remove a Trustee for cause, including breach of fiduciary duty or incapacity.
(c) Successor Trustee. Vacancies shall be filled in the order of succession set forth in Schedule C. Each successor Trustee shall have all rights, powers, and duties of the original Trustee.
ARTICLE V. REPRESENTATIONS & WARRANTIES
5.1 Settlor Representations.
(a) Authority & Capacity. Settlor has full legal capacity and authority to establish this Trust.
(b) Title. All property transferred to the Trust is owned by Settlor free of liens or encumbrances.
(c) No Consideration from Beneficiary. Beneficiary has furnished no consideration for the establishment of this Trust.
5.2 Trustee Representations.
(a) Acceptance. Trustee accepts the duties and obligations imposed by this Agreement.
(b) Fiduciary Compliance. Trustee will administer the Trust in good faith and in accordance with its terms and Applicable Law.
(c) No Prohibited Transactions. Trustee has disclosed any potential conflicts of interest and will avoid self-dealing except as permitted by Applicable Law or authorized by court order.
5.3 Survival. The representations and warranties set forth in this Article shall survive the execution of this Agreement and the transfer of any assets to the Trust.
ARTICLE VI. COVENANTS & RESTRICTIONS
6.1 Settlor Covenants. Settlor shall execute all documents and take all actions reasonably requested by Trustee to transfer legal title of the Protected Trust Property.
6.2 Trustee Covenants.
(a) Compliance. Trustee shall maintain the Trust’s status as a discretionary supplemental needs trust under Applicable Law.
(b) Notice. Trustee shall promptly notify the Beneficiary or the Beneficiary’s representative payee of any material change in Trust administration that could affect benefit eligibility.
(c) Records. Trustee shall maintain accurate books and records, subject to inspection on reasonable notice.
6.3 No Amendment Affecting Supplemental Needs Purpose. No party shall cause, and no court shall construe, any amendment that would convert this Trust into a support trust or otherwise render the Trust assets a countable resource.
ARTICLE VII. EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default. For purposes of this Agreement, “Default” occurs upon:
(a) Trustee’s intentional misappropriation of Trust assets;
(b) Trustee’s conviction of a crime involving dishonesty;
(c) Trustee’s willful or grossly negligent violation of fiduciary duties; or
(d) Failure to provide required accountings after a 30-day written cure period.
7.2 Remedies. Upon Default, the following remedies are cumulative and not exclusive:
(a) Removal and appointment of a successor Trustee;
(b) Surcharge or restitution against Trustee limited to the Trust assets or, in cases of bad faith or intentional misconduct, to Trustee’s personal assets;
(c) Injunctive relief from the Probate Division of the Vermont Superior Court to prevent further harm to the Trust;
(d) Recovery of reasonable attorneys’ fees and costs from the Trust, or from the Trustee personally if so ordered by the court.
ARTICLE VIII. RISK ALLOCATION
8.1 Indemnification of Trustee. Trustee shall be indemnified and held harmless from and against any loss, liability, or expense (including reasonable attorneys’ fees) arising out of Trustee’s administration of the Trust, except for losses caused by Trustee’s willful misconduct or gross negligence. Such indemnification shall be satisfied solely from the Trust assets.
8.2 Limitation of Liability. Except as provided in Section 7.2(b), Trustee’s liability shall in all events be limited to the value of the Trust assets. Trustee shall not be liable for any decrease in Trust value due to market fluctuations or other events beyond Trustee’s control.
8.3 Insurance. Trustee may purchase fiduciary liability insurance payable from the Trust to cover potential claims arising from its administration.
8.4 Force Majeure. Trustee shall not be liable for any delay or failure to perform caused by acts of God, war, terrorism, epidemic, civil disorder, or other causes beyond its reasonable control, provided Trustee exercises reasonable diligence upon cessation of the force-majeure event.
ARTICLE IX. DISPUTE RESOLUTION
9.1 Governing Law. This Agreement and any dispute arising hereunder shall be governed by and construed in accordance with the laws of the State of Vermont, without regard to its conflicts-of-law principles.
9.2 Forum Selection. Exclusive jurisdiction and venue for all proceedings concerning the Trust (except as expressly provided in Section 9.3) shall lie in the Probate Division of the Vermont Superior Court in the county where the Trust is administered.
9.3 Limited Arbitration. Any dispute solely concerning Trustee compensation or routine accounting objections may, at Trustee’s election, be submitted to binding arbitration administered by the American Arbitration Association in Burlington, Vermont, under its Commercial Arbitration Rules. The arbitrator’s fees and costs shall be charged to the Trust unless the arbitrator determines otherwise.
9.4 Injunctive Relief. Notwithstanding Section 9.3, any party may seek temporary, preliminary, or permanent injunctive relief in the Probate Division of the Vermont Superior Court to enforce the Trust terms or protect Trust property.
9.5 Jury Waiver. The parties acknowledge that probate matters in Vermont are tried without a jury; accordingly, no jury trial right applies.
ARTICLE X. GENERAL PROVISIONS
10.1 Amendment; Reformation. This Agreement may be amended only by (a) written instrument executed by Settlor (if living) and Trustee, AND (b) court order affirming that the amendment is necessary to maintain Beneficiary’s benefit eligibility and does not contravene the supplemental needs purpose.
10.2 Severability. If any provision is held invalid or unenforceable, the remaining provisions shall be reformed to best effectuate the Settlor’s intent and remain in full force.
10.3 Merger & Integration. This Agreement constitutes the entire understanding among the parties regarding the Trust and supersedes all prior oral or written agreements.
10.4 Assignment. No assignment of rights or delegation of duties is permitted except as expressly provided herein or by court order.
10.5 Successors & Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, successors, and permitted assigns.
10.6 Headings. Section headings are for convenience only and do not affect interpretation.
10.7 Counterparts; Electronic Signatures. This Agreement may be executed in counterparts, each of which is deemed an original, and all of which constitute one instrument. Signatures transmitted electronically (e.g., via PDF or approved e-signature platform) are deemed originals.
ARTICLE XI. EXECUTION BLOCK
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
Settlor:
[SETTLOR LEGAL NAME]
Date: _______
Trustee (Individual):
[TRUSTEE LEGAL NAME]
Date: _______
OR
Trustee (Corporate):
[TRUSTEE ENTITY NAME]
By: _____
Name: _____
Title: _______
Date: _______
[OPTIONAL] Co-Trustee:
[CO-TRUSTEE NAME]
Date: _______
NOTARIZATION
State of Vermont )
County of ___ ) ss.
On this _ day of _, 20__, before me, the undersigned notary public, personally appeared [SETTLOR NAME] (and/or [TRUSTEE NAME]), known to me or proven to me through satisfactory evidence to be the person(s) whose name(s) is/are signed on the preceding document, and acknowledged to me that he/she/they signed it voluntarily for its stated purpose.
Notary Public
My Commission Expires: ____
SCHEDULE A – Initial Trust Property
[Describe cash, securities, or other property transferred at inception.]
SCHEDULE B – Remainder Beneficiaries
[List primary and contingent remainder beneficiaries; include percentages or shares.]
SCHEDULE C – Trustee Succession Plan
- First Successor Trustee: [NAME & CONTACT]
- Second Successor Trustee: [NAME & CONTACT]
- Trust Protector (optional): [NAME & POWERS]
[// GUIDANCE: Consider appointing a Trust Protector with limited authority to remove/replace Trustee, correct drafting errors, or amend for continued public-benefit compliance.]
[// GUIDANCE: Before funding, prepare a draft letter to the Social Security Administration/Medicaid agency describing the Trust and request a resource determination. Maintain proof of such submission in the Trust records.]