Typical Trust Provisions

Tom O'Brien

Although an individual trust may be unlike any other in some respect, there are general provisions that are almost always included in a Special Needs Trust.

Purposes. The box at the right shows standard language that sets out what the funds in trust are to be used for. This is not an exclusive list. A majority of newly funded trusts make early disbursements for one or both of a trip to Disneyland and a computer.

Non-availability of funds/spendthrift provisions. All Special Needs Trusts provide that funds held in the trust are not to be placed under the control of the beneficiary, and that funds held in trust will not be available to satisfy debts created by the beneficiary. This protects the trust from claims by, for example, consumer credit companies with outstanding charges. Creation of a trust cannot be done when the effect is to defraud creditors, and this is a consideration when a trust has been newly created using funds of the beneficiary. Generally, however, it is important not to allow the beneficiary to believe that funds held in trust will necessarily be disbursed at the beneficiary’s direction. It is a good idea to document when a request is declined, in order to demonstrate the non-availability of funds.

Payments to vendors. Most trusts provide specifically that disbursements from the trust are not to be made to the beneficiary but are to be in the form of payments to vendors.

Term/revocability. Many trusts state that they will not terminate until the death of the beneficiary. Most court ordered trusts do provide that the beneficiary has the right, upon obtaining an order from a court that s/he is fully competent, to terminate the trust. Trusts established for unimpaired minors often contain provisions that extend the life of the trust to age 20-35. Generally, when a trust terminates early, the trustee should notify the state if the trust includes Medicaid Lien provisions, even though the validity of a claim before the death of the beneficiary is cloudy.

Remainder provisions. The trustor of a third party trust generally states what is to be done with funds remaining after the death of the beneficiary. These provisions are very similar to comparable provisions in a will. Court ordered trusts usually provide that, once the Medicaid lien is satisfied, funds will be transferred according to the provisions for intestate estates. The beneficiary does have the right to make a will and funds remaining in trust will be distributed according to the provisions of any valid will the beneficiary may make. The trustee usually is given authority to distribute funds remaining in trust to the remaindermen, in essence acting as executor.

Removal/resignation of trustee. Trustees may, of course give notice and resign. As in guardianships, almost any interested person may seek the removal of a trustee by the court. Trusts are very easily brought under the jurisdiction of the courts.

Powers of trustee. Trusts invariably list out in great detail that the trustee has the powers necessary to manage the trust, make investments, retain counsel or other professional assistance, do taxes, borrow and lend money, acquire, exchange, transfer, mortgage, pledge, rent, lease, make advances, borrow money, commence and compromise claims, maintain insurance, and otherwise manage any part of the Trust estate. This recital can be somewhat heady for the trustee and scary to the families or beneficiaries. What is not explicitly stated in many trusts is that the trustee is bound by the requirements of various statutes and case law that set a very high standard for prudence and responsibility.

Major Purchases. Many Special Needs Trusts provide that purchase of a house and any spending item that exceeds 25% of the trust is considered an investment. This language is always included when there is a trust committee in order to assure that the trustee has veto power over large expenditures.

Annual Statements. Most trusts provide that the trustee is to make an annual statement of the activity of the trust to the beneficiary, the beneficiaries representative and other interested persons. Court ordered trusts in Washington require filing and approval of an annual report with the court; comparable to a guardian’s accounting.

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