SPECIAL NEEDS TRUST AGREEMENT
(Illinois)
[// GUIDANCE: This template is drafted to comply with 760 Ill. Comp. Stat. 3/101 et seq. (Illinois Trust Code), the federal special-needs safe harbor at 42 U.S.C. § 1396p(d)(4)(A) (for self-settled trusts), and prevailing best-practice distribution standards designed to preserve Supplemental Security Income (SSI) and Medicaid eligibility. Customize bracketed fields and optional clauses to fit the specific funding source (third-party vs. self-settled) and the beneficiary’s circumstances before execution.]
TABLE OF CONTENTS
- Document Header
- Recitals
- Definitions
- Establishment of Trust & Funding
- Trustee Provisions
5.1 Appointment & Acceptance
5.2 Successor Trustee
5.3 Bond, Compensation & Expenses - Purpose & Special Needs Compliance
- Distribution Standards
- Payback Provision — OPTIONAL
- Spendthrift & Creditor Protection
- Trustee Powers
- Accounts, Records & Reports
- Risk Allocation
12.1 Trustee Indemnification
12.2 Limitation of Liability - Tax Matters
- Dispute Resolution
- Amendment & Termination
- General Provisions
- Execution Block
1. DOCUMENT HEADER
This Special Needs Trust Agreement (the “Agreement”) is entered into as of [EFFECTIVE DATE] (the “Effective Date”) by and among:
• [SETTLOR NAME], residing at [SETTLOR ADDRESS] (the “Settlor”);
• [TRUSTEE NAME], residing at [TRUSTEE ADDRESS] (the “Trustee”); and
• [BENEFICIARY NAME], born [DOB], residing at [BENEFICIARY ADDRESS] (the “Beneficiary”).
The trust established hereby shall be known as the “[BENEFICIARY NAME] Special Needs Trust” (the “Trust”) and shall be governed by the laws of the State of Illinois (the “Situs”).
2. RECITALS
A. The Beneficiary is an individual with a disability within the meaning of 42 U.S.C. § 1382c(a)(3) and, as such, may be eligible for means-tested public benefits, including SSI and Medicaid.
B. The Settlor desires to establish and fund this Trust to supplement, not supplant, such public benefits and to enhance the Beneficiary’s quality of life.
C. The Trustee is willing to hold, administer, and distribute the Trust Estate in accordance with the terms set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Settlor irrevocably declares and agrees as follows:
3. DEFINITIONS
“Accounting Period” – Each calendar year ending December 31 or such other period selected by the Trustee consistent with Sections 11.1 and 11.2.
“Beneficiary” – The individual identified in Section 1 who is intended to benefit from the Trust.
“Disqualified Distribution” – Any distribution that would count as income or a resource for SSI or Medicaid purposes and jeopardize the Beneficiary’s eligibility.
“Government Benefits” – Any federal, state, or local public assistance program based on need, including SSI and Medicaid.
“Payback Provision” – The reimbursement requirement described in Section 8 (if applicable).
“Supplemental Needs” – Extras that enhance the Beneficiary’s comfort, education, recreation, and well-being but are not basic support covered by Government Benefits.
“Trust Estate” – All property, real or personal, tangible or intangible, and all income thereon, held from time to time by the Trustee under this Agreement.
“Trustee” – The person or institution then serving as trustee, including any Co-Trustee or Successor Trustee.
[// GUIDANCE: Expand or narrow definitions as necessary to track customized language.]
4. ESTABLISHMENT OF TRUST & FUNDING
4.1 Irrevocable Trust. The Settlor hereby irrevocably transfers to the Trustee the property described in Schedule A attached hereto, to be held, administered, and distributed as the Trust Estate under this Agreement.
4.2 Additional Contributions. The Trustee may accept additional property from the Settlor or any other person, subject to the Trustee’s consent and Section 6 (Special Needs Compliance).
4.3 Separate Accounts. The Trustee may maintain segregated accounts within the Trust Estate if required to track contributions for tax or benefit-planning purposes.
5. TRUSTEE PROVISIONS
5.1 Appointment & Acceptance
The Trustee accepts the Trust and agrees to act in accordance with this Agreement and the Illinois Trust Code.
5.2 Successor Trustee
(a) [NAME OR METHOD FOR APPOINTMENT] shall serve as first Successor Trustee upon the written resignation, incapacity, or removal of the acting Trustee.
(b) Any Successor Trustee shall assume office by executing an acceptance instrument and filing it with the Trust records.
(c) No court appointment is required unless otherwise mandated by law.
5.3 Bond, Compensation & Expenses
(a) Bond. No bond shall be required unless ordered by a court of competent jurisdiction.
(b) Compensation. The Trustee shall be entitled to reasonable compensation in accordance with Illinois law and industry standards.
(c) Expenses. The Trustee is entitled to reimbursement from the Trust Estate for all reasonable and necessary expenses incurred in administration.
6. PURPOSE & SPECIAL NEEDS COMPLIANCE
6.1 Primary Purpose. The Trust is intended to provide for the Beneficiary’s Supplemental Needs while preserving eligibility for Government Benefits.
6.2 Non-Support Trust. No part of the Trust Estate shall be used for the Beneficiary’s basic support, maintenance, or other needs that public benefits or other resources are intended to cover, unless the Trustee determines that such distribution is in the Beneficiary’s best interest and after considering all consequences to Government Benefits.
6.3 Trustee’s Discretion Paramount. All distributions are wholly within the Trustee’s sole and absolute discretion; the Beneficiary shall have no right to compel distributions.
6.4 Intent to Qualify. For self-settled trusts, the parties intend that this Trust meet the requirements of 42 U.S.C. § 1396p(d)(4)(A). [If the Trust is a third-party SNT, delete reference and Section 8.]
7. DISTRIBUTION STANDARDS
7.1 Guidelines. Subject to Section 6, the Trustee may pay for or provide goods and services that, in the Trustee’s judgment, will enhance the Beneficiary’s comfort, happiness, and welfare, including but not limited to:
a. Medical, dental, and therapeutic services not covered by Government Benefits;
b. Education, vocational training, and assistive technology;
c. Transportation, including adapted vehicles;
d. Recreational and cultural experiences;
e. Personal care attendants and companion services; and
f. Modifications to residence for accessibility.
7.2 Disbursement Methods. Whenever feasible, the Trustee shall make payments directly to providers of goods or services to avoid the Beneficiary’s receipt of countable income.
7.3 Emergency Support. The Trustee may, after balancing competing considerations, make distributions for basic support if necessary to avoid a serious threat to the Beneficiary’s health or safety, notwithstanding potential benefit reduction.
7.4 Prohibited Distributions. The Trustee shall not:
a. Provide cash directly to the Beneficiary except for minimal, irregular amounts permitted by SSI rules;
b. Pay rent or utilities unless carefully structured to minimize in-kind support and maintenance (ISM) penalties; or
c. Permit the Beneficiary to assign or anticipate Trust assets.
[// GUIDANCE: Revise Section 7.4 items to reflect any evolving SSI resource rules.]
8. PAYBACK PROVISION — OPTIONAL
[INCLUDE ONLY FOR SELF-SETTLED TRUSTS OR WHEN REQUIRED BY COURT ORDER]
Upon the death of the Beneficiary, and after payment of any outstanding qualified expenses, the Trustee shall reimburse each state that has provided medical assistance to the Beneficiary under a state Medicaid plan, up to the total amount of such medical assistance paid on the Beneficiary’s behalf, to the extent then required by 42 U.S.C. § 1396p(d)(4)(A). Any remaining balance shall be distributed to [REMAINDER BENEFICIARIES / SETTLOR’S ESTATE] as set forth in Schedule B.
9. SPENDTHRIFT & CREDITOR PROTECTION
The Trust is a spendthrift trust under 760 Ill. Comp. Stat. 3/503. No interest in the Trust Estate shall be subject to voluntary or involuntary transfer, assignment, pledge, seizure, or legal process until actually received by the Beneficiary.
10. TRUSTEE POWERS
The Trustee shall have, in addition to all powers granted under the Illinois Trust Code, the following powers, to be exercised in a fiduciary capacity and consistent with the Trust’s purpose:
a. Invest and reinvest assets pursuant to the Illinois Prudent Investor Rule;
b. Lease, exchange, or sell Trust property;
c. Employ and compensate agents, attorneys, or advisors;
d. Execute documents and act through nominees;
e. Make elections under federal or state tax law;
f. Compromise claims;
g. Delegate investment functions as permitted by law; and
h. Do all acts necessary or advisable for proper administration.
11. ACCOUNTS, RECORDS & REPORTS
11.1 Accountings. The Trustee shall maintain complete records and provide annual accountings to the Beneficiary (or the Beneficiary’s guardian) and, upon written request, to any state Medicaid agency with a legally enforceable right to such accountings.
11.2 Court Supervision. Unless otherwise required by Illinois law or ordered by a court, the Trust shall be free from active court supervision.
11.3 Tax Returns. The Trustee shall file all required federal, state, and local tax returns.
12. RISK ALLOCATION
12.1 Trustee Indemnification
The Trust Estate shall indemnify and hold harmless the Trustee from any liability, loss, or expense (including reasonable attorneys’ fees) arising from administration of the Trust, except for acts or omissions involving willful misconduct or gross negligence.
12.2 Limitation of Liability
Liability of the Trustee is limited to the assets of the Trust Estate; no personal assets of the Trustee shall be subject to claims relating to the Trust.
13. TAX MATTERS
13.1 Grantor vs. Nongrantor Trust. [SELECT ONE] The Trust shall be treated as a (a) grantor trust under Subpart E, Part I, Subchapter J of the Internal Revenue Code, with the Settlor taxed on all income; OR (b) nongrantor trust filing its own fiduciary income tax returns.
13.2 EIN & Withholding. The Trustee shall obtain an Employer Identification Number and comply with all backup-withholding requirements.
13.3 GST Exemption. [OPTIONAL] The Settlor hereby allocates Generation-Skipping Transfer (“GST”) tax exemption to contributions made to this Trust to the fullest extent permitted by law.
14. DISPUTE RESOLUTION
14.1 Governing Law. This Agreement and all rights and duties hereunder are governed by the laws of the State of Illinois, without regard to conflict-of-laws principles.
14.2 Forum Selection. Any proceeding concerning the construction, administration, or enforcement of this Trust shall be filed exclusively in the Probate Division of the Circuit Court of [COUNTY], Illinois.
14.3 Limited Arbitration. Notwithstanding Section 14.2, disputes solely between current or former Trustees regarding administration shall, at the election of any Trustee, be resolved by confidential arbitration administered by [ARBITRATION BODY], seated in [CITY, IL], under its commercial arbitration rules. The Probate Court shall retain concurrent jurisdiction for injunctive relief.
14.4 Injunctive Relief. Nothing in this Section shall impair any party’s right to seek equitable relief, including injunctions or specific performance, from the Probate Court to enforce the terms of this Trust.
14.5 Jury Waiver. Consistent with trust-law practice and the equity jurisdiction of the Probate Court, the parties waive any right to trial by jury.
15. AMENDMENT & TERMINATION
15.1 Amendment by Court. The Trust may be amended by a court of competent jurisdiction upon petition by the Trustee or other interested party to conform with changes in applicable law or to better effectuate the Trust’s purpose, provided such amendment does not jeopardize Government Benefits.
15.2 Termination. The Trust shall terminate upon the earliest of:
a. The death of the Beneficiary (subject to Section 8, if applicable);
b. Depletion of the Trust Estate; or
c. Court-ordered termination.
15.3 Residual Distribution. Upon termination, remaining assets shall be distributed in accordance with Section 8 or, absent a Payback Provision, to the remainder beneficiaries listed in Schedule B.
16. GENERAL PROVISIONS
16.1 No Merger. If the Beneficiary becomes the sole Trustee, the Trust shall not merge; the Trust Estate shall continue to be held subject to all protective provisions herein.
16.2 Severability. Any provision held invalid or unenforceable shall be reformed to the minimum extent necessary to achieve the original intent, and the remaining provisions shall remain in full force.
16.3 Integration. This Agreement constitutes the entire agreement of the parties regarding the subject matter and supersedes all prior understandings.
16.4 Headings. Section headings are for convenience only and do not affect interpretation.
16.5 Counterparts & Electronic Signatures. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Signatures delivered by electronic means shall be deemed valid and binding to the fullest extent permitted by law.
17. EXECUTION BLOCK
IN WITNESS WHEREOF, the Settlor and Trustee have executed this Special Needs Trust Agreement as of the Effective Date.
| Settlor | Date |
|---|---|
| _______ [SETTLOR NAME] |
_____ |
| Trustee | Date |
|---|---|
| _______ [TRUSTEE NAME] |
_____ |
[OPTIONAL: Co-Trustee Signature Block]
ACKNOWLEDGMENT
State of Illinois )
County of _ )
On this ___ day of _, 20_, before me, the undersigned Notary Public, personally appeared ________, proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to this instrument, and acknowledged that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature(s) on the instrument the person(s), or the entity on behalf of which the person(s) acted, executed the instrument.
Notary Public
My Commission Expires: ______
SCHEDULE A
Initial Trust Property
[Describe cash, securities, or other property transferred.]
SCHEDULE B
Remainder Beneficiaries
[Identify individuals or charities and respective percentages.]
[// GUIDANCE: Attach any court order establishing the Trust (for self-settled trusts) and include Medicaid agency notification letters as required by state practice.]