SPECIAL TRUSTS

§§867, 142, 1396 Supplemental Needs Trusts

When and How to Use Them

DEBORAH A. GREEN

Green, Benouis & McCullar L.L. P.

2404 Rio Grande

Austin, Texas 78705

Copyright 1998 by Deborah A. Green

ADVANCED ESTATE PLANNING & PROBATE LAW COURSE 1998

Wednesday - Friday, June 3-5, 1998

Austin, Texas

C

Table of Contents

I. INTRODUCTION, SCOPE, AND ACKNOWLEDGMENTS	1

A. Introduction	1

B. Scope	1

C. Acknowledgments	1

II. FEDERAL MEDICAL INSURANCE AND ASSISTANCE PROGRAMS	2

A. Background for Benefit Programs	2

B. Medicare vs. Medicaid	2

C. Qualifying for Medicaid	2

D. Medicaid Basics	3

III. SUMMARY OF MEDICAID ELIGIBILITY REQUIREMENTS	3

A. Nationality and Residence	3

B. Age, Blindness, or Disability	4

C. Medical Necessity & Disability for Nursing Home & Community Based Care	4

D. Income & Resource Limitations	4

E. Rules Affecting Rental Income	5

H. Available or Countable Resources	5

I. Excluded Resources	6

IV. SOCIAL SECURITY DISABILITY PROGRAMS: "DIB" AND "SSI"	7

A. Defining Disability	7

B. Disability Insurance Benefits	8

C. Supplemental Security Income	8

D. SSI and Medicaid	8

V. GETTING DOWN TO IT. USING SPECIAL TRUSTS TO QUALIFY FOR BENEFITS ASSISTANCE AND TO CONSERVE CLIENT INCOME & ASSETS	9

A. Sheltering Otherwise Disqualifying Assets in Special Trusts	9

B. Client Circumstances	9

C. Categories of Special Trusts	9

VI. QUALIFYING COURT-CREATED SUPPLEMENTAL NEEDS TRUSTS	9

A. Defining the Trusts	9

B. Court-Created Supplemental Needs Trusts	10

VII. THE PURPOSE, MANAGEMENT, AND CREATION OF SUPPLEMENTAL NEEDS TRUSTS
10

A. Purpose of an SNT	10

B. Managing an SNT	10

C. Supplementing vs. Supplanting the Basic Approach	10

D. Qualifying Self-Settled and Nonself-Settled SNTs	11

E. Creating SNTs - Features and Requirements	12

F. §1396 (Self-Settled) SNTs and the "Payback Provision"	12

G. Defending the Payback Provision	12

VIII. SECTION 1396 INDIVIDUAL (Self-Settled) SUPPLEMENTAL NEEDS TRUSTS	13

A. §1396p(d)(4)(A) - Individual, under Age 65, Self-Settled SNT	13

1. Client Profile Number One: §1396p(d)(4)(A) Individual (Self-Settled) Supplemental Needs Trust	14

2. Analysis of Ms. Jones' §1396(A) Individual's Supplemental Needs Trust	14

B. §1396p(d)(4)(C) - Pooled Interest, over (or under) Age 65, Self-Settled SNT	15

1. Client Profile Number Two: §1396p(d)(4)(C) Pooled (Self-Settled) Supplemental Needs Trust	16

2. Analysis of Ms. Jones' §1396(C) Pooled Interest Supplemental Needs Trust	16

IX. COMBINING STATE AND FEDERAL LAWS TO CREATE SPECIAL TRUSTS	16

A. Utilizing §867 of the Texas Probate Code to Create §1396 Trusts	16

1. Client Profile Number Three: §§867 / 1396p(d)(4)(A) Individual (Self-
Settled)Supplemental Needs Trust	18

2. Analysis of Ms. Jones' §§867 / 1396(A) Individual SNT	18

3. Client Profile Number Four: §§867 / 1396p(d)(4)(C) Pooled Interest (Self-Settled) Supplemental Needs Trust
18

4. Analysis of Ms. Jones' §§867 / 1396(C) Pooled Interest SNT	18

B. Utilizing §142 of the Texas Property Code to Create §1396(A) Trusts	19

1. Client Profile Number Five: §§142 / 1396p(d)(4)(A) Individual (Self-Settled) Supplemental Needs Trust	19

2. Analysis of Amy's §§142 / 1396(A) Individual Supplemental Needs Trust	20

X. THIRD PARTY, NONSELF-SETTLED (OR NON-GRANTOR) SUPPLEMENTAL NEEDS TRUST	20

A. Nature and Purpose of Non-Grantor Supplemental Needs Trusts	20

B. Requirements for Non-Grantor Supplemental Needs Trusts	21

1. Client Profile Number Six: Common Law, Nonself-Settled, Non-Grantor Supplemental Needs Trust	22

2. Amy's Common Law, Nonself-settled Supplemental Needs Trust Structure Analysis
22

XI. CONCLUSION	22

SPECIAL TRUSTS: §§867, 142, 1396 Supplemental Needs Trusts - When and How to Use Them

I. INTRODUCTION, SCOPE, AND ACKNOWLEDGMENTS

A. Introduction

It is my intent in this paper to outline the structure and use of certain special trusts (sometimes also referred to as "disability trusts") and to explain how those trusts relate to a disabled or incapacitated person's ability to access public sources for beneficial support. The paper will examine the issues a practioner should concentrate on when qualifying disabled or incapacitated clients for medical assistance under Medicaid and/or other government programs. Included at the beginning of the paper is some basic information on both state and federal law requirements and restrictions for the "Medicare" and "Medicaid" programs, Disability Insurance Benefits ("DIB") program, and Supplemental Security Income ("SSI") program. Six client "profiles" will be presented in the paper, each illustrating the circumstances usually encountered by the practioner when assessing whether or not a disabled client would benefit from the use of a "special" or "disability" trust to shelter their assets and qualify the client for program assistance. Because the paper's focus is on the use of special trusts to qualify disabled or incapacitated individuals for assistance, the paper will not discuss property transfers or deliberate wealth reduction for persons entering nursing homes and attempting to qualify for Medicaid program payments for that long term care.

B. Scope

The "special trusts" covered by the paper are Medicaid qualifying nonself-settled Supplemental Needs Trusts created through case law or "common law" and self-settled Supplemental Needs Trusts created pursuant to federal law under the provisions of the Omnibus Reconciliation Act of 1993 (OBRA '93) specifically 42 U.S.C.A. §1396p(d)(4)(A) ("1396 SNT Trusts"), 42 U.S.C.A. and §1396p(d)(4)(C) ("Pooled SNT Trusts") Supplemental Needs Trusts ("SNTs") created pursuant to Sections 867 -- 873 of the Texas Probate Code ("867 / 1396 Trusts") and Section 142.005 of the Texas Property Code ("142 / 1396 Trusts").

The reason the trusts are discussed here and are referred to in the paper as "special trusts" or "disability trusts" is that it is possible to place the assets of the trust beneficiary (the disabled or incapacitated person) in such a trust and then qualify the beneficiary for government assistance programs that would otherwise be unavailable to the beneficiary due to the income and asset limitations placed on program recipients.

Draft forms of the trusts and court pleadings discussed are provided for use in Texas and some of those documents are re-printed here with the permission of Glenn Karisch from his paper Court-Created Trusts in Texas, State Bar of Texas Advanced Drafting: Estate Planning and Probate Law Course (1995), updated to reflect 1997 legislative changes (1998). Documents created using these forms have been accepted by the Texas Department of Human Services and the Social Security Administration as qualified trusts for the governmental programs these agencies administer as discussed herein.

The Texas Department of Human Services ("DHS" or the "Department") administers the Medicaid program in Texas and the Social Security Administration ("SSA") administers the Supplemental Security Income and Disability Insurance Benefits programs. The author does not warrant that the forms as provided meet all requirements of the agencies, or of state and federal laws.

C. Acknowledgments

I gratefully acknowledge the assistance of Clyde Farrell, Glenn Karisch, Leigh Atkinson, and David Goodman for their help and insight in the research and preparation of this paper. For excellent and in-depth discussions of Medicaid planning in Texas, court-created trusts, and the use of special trusts in personal injury and other cases see: H. Clyde Farrell, Financing Long-Term Care in Texas, published by the Texas Chapter of the National Academy of Elder Law Attorneys; Glenn M. Karisch, Court-Created Trusts in Texas, State Bar of Texas Advanced Drafting: Estate Planning and Probate Law Course (1995), updated to reflect 1997 legislative changes (1998); Roger M. Bernstein, Susan G. Haines & Mary Smith, Special Needs Trusts: Drafting and Administration, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute November, 1997; and Clifton B. Kruse, Jr., Medicaid Trusts: Estate Planning Using Non-Medicaid Disqualifying Self-Settled and Third Party Trusts, 19th Annual Advanced Estate Planning and Probate Course, State Bar of Texas, June 1995.

II. FEDERAL MEDICAL INSURANCE AND ASSISTANCE PROGRAMS

A. Background for Benefit Programs

In order to do the simplest assessment of a client's eligibility for state and federal benefits programs, it is necessary for the practioner to know at least a little bit about the types of programs available to qualifying applicants and to be able to properly identify the programs for the client. The following information is provided here for that purpose.

B. Medicare vs. Medicaid

In essence Medicare is a federal health insurance program available to individuals who: 1) meet either the required disability or age guidelines of the program, and 2) have paid money into the program through self-employment taxes and/or Social Security/Medicare withholding payments from the person's income or, in some cases, the income of a spouse or parent. Medicare coverage is the health insurance coverage available to all Americans who have paid Social Security taxes and who are drawing either Social Security Retirement benefits or Social Security Disability benefits (see Section IV below).

Therefore, in order to receive Medicare insurance coverage, the claimant, or someone whose payments can be attributed to the claimant, must have made countable payments into the program. The scope of the coverage, i.e. what the program will pay for, is set by federal laws and regulations and is administered in the different states by companies and agencies who contract with the federal government through the Social Security Administration to provide those administrative services. As with any insurance program, some medical services are covered by Medicare and some are not, and some co-payment or deductible amount is normally required for most of the covered expenses from the patient/claimant.

Because people receive Medicare coverage if they have paid into the Medicare program, Medicare is not an income or asset-restrictive governmental program for purposes of covering the claimant's medical needs. In other words, it makes no difference, in terms of a patient's qualifying for and receiving Medicare coverage, what that claimant's current income is, or what assets she or he may own, or whether any or all of those assets are held in trust. Therefore, because the practioner typically does not consider special trust structures for a client in order to qualify the client for Medicare coverage, the rules and regulations of the Medicare program and the benefits covered by the program will not be discussed in this paper. Instead, in doing the analysis of a client's medical and financial needs, the practioner should be considering the advantages or disadvantages of using special trust structures to qualify the client for Medicaid and/or other income and asset-restrictive government programs.

Medicaid is a federal government health care program used to provide medical care and services to indigent (read as poverty level) persons. As such it is classified with other federal government "Welfare" programs such as Aid to Families with Dependent Children ("AFDC") and Supplemental Security Income ("SSI"), etc. Under these income and asset-restrictive programs, the federal government pays an amount of money to each of the individual fifty states who then become responsible for administering those federal funds and providing covered services to state residents. 42 U.S.C. §1396a and 42 U.S.C. §1396d. Funds administration and covered services are provided through contracts with state agencies and approved service providers. The states have some latitude within the federal laws and regulations in setting their own individual guidelines for people qualifying for and receiving the federal funds assistance. Thus, the programs become creatures of both federal and state law, meaning that both must be considered when making decisions about people who receive benefits under the programs.

C. Qualifying for Medicaid

The reason we should consider the use of a special trust to qualify a client for income and asset- restrictive programs such as Medicaid is that the person may not have made any countable payments into the Medicare program or because such "poverty program's" medical coverage may meet more of the client's needs than the coverage provided for by Medicare or by the client's private insurance. This is particularly important to consider when the person either is now residing in a skilled-nursing facility ("nursing home"), or it is likely that the person may have a need for such "long-term" care in the foreseeable future. Medicare's coverage of this type of medical expense is extremely limited and unless the client already has private coverage for long-term care, alternate government benefits programs may need to be considered.

Unlike Medicare coverage, the Medicaid program covers most of the medical costs of people in qualified nursing facilities whose medical condition requires that they receive continuous care of that kind. Other Medicaid alternative programs may also cover some or all of the costs associated with providing daily living assistance and some skilled-nursing or medical care for qualified individuals in their homes ("community based" or "alternative care"). We should consider whether or not we can utilize a special trust structure to qualify an incapacitated or disabled client for Medicaid when the client has assets that exceed those allowed by the program's guidelines but it is likely that those assets will be insufficient to support all of the client's needs.

Note: Although practioners and others refer to the program as the "Medicaid" program, that term is not found in the statutes and regulations governing the program. Those sources refer to the program as the "Medical Assistance Program." Because the term "Medicaid" is so widely used and recognized, however, I will refer to the program as "Medicaid" in this paper. Also, as stated above in the introduction to this paper, the federal legislation controlling program assistance and the use of special trusts is referred to by practioners as "OBRA '93." The federal Department of Health and Human Services Health Care Financing Administration ("HCFA") regulates the programs for the federal government and the states and that agency publishes its rules and regulations for states administering Medicaid funds in the "State Medicaid Manual." This HCFA manual is the "handbook" used by agency caseworkers and intake personnel when they are assessing an applicant's program eligibility. See HCFA Transmittal No. 64 (State Medicaid Manual §3257-3259.8) for the Department's regulations and rules affecting trusts and the exceptions to transfers made into trusts by the OBRA '93 legislation.

D. Medicaid Basics

As of January 1998 to qualify for Medicaid nursing home benefits in Texas, an unmarried applicant cannot have monthly income, on average, that exceeds $1,482.00 and he or she cannot have more than $2,000.00 in "available" or "countable resources" (cash or property readily convertible to cash, i.e. stocks, bonds, etc.). The applicant's homestead and certain other personal property can be exempted from the calculations of available resources, meaning that this property need not be liquidated and the proceeds spent before the program benefits begin. The program's restrictions and limitations on income and available resources are reviewed and subject to change yearly. As the information in this paper will explain, however, the program regulations do allow that someone may qualify for benefits even though they own assets, or have income, in excess of the program guidelines if those assets are property placed and sheltered in certain limited "qualifying trusts."

Different formulas for financial qualification are applied for married and for single persons seeking program benefits ("applicants") and the formulas vary according to the type of assistance being sought. It is beyond the scope of this paper to fully discuss all of the government programs that are available and all of the rules and regulations affecting those programs differentiating the rules between those for single and those for married applicants. Therefore, the programs outlined here are the most commonly encountered programs for which the use of a special trust may aid in qualifying a client for assistance. The programs will be discussed within the terms of qualifying an unmarried applicant. However, the techniques for using special trusts for program qualification is not altered by the client's marital status and the techniques presented will work the same for married or unmarried clients.

The information presented in Section III below is intended to provide practioners with basic program information by covering some of the rules and asset restrictions of the Medicaid program in Texas and the types of assistance covered by that program. The information is re-printed here with the generous permission of H. Clyde Farrell and is adapted and/or excerpted from Mr. Farrell's excellent publication entitled Financing Long-Term Care in Texas, published by the Texas Chapter of the National Academy of Elder Law Attorneys. The full text of Mr. Farrell's paper may be purchased by calling 1-800-424-6291.

III. SUMMARY OF MEDICAID ELIGIBILITY REQUIREMENTS

A. Nationality and Residence

To qualify for the Medicaid program, the applicant must be (a) a U. S. citizen or (b) an alien lawfully admitted to the United States for permanent residence or (c) otherwise permanently living in the U. S. under color of law (as defined in the regulation). 40 T.A.C. §15.300(a),(b). The applicant must be a resident of Texas. That is, he or she must have established residence in Texas and intend to remain here. 40 T.A.C. §15.301(a). No specific time period of residency in Texas is required. Travel out of Texas does not terminate residency here, if the applicant has an intent to return to the state.

B. Age, Blindness, or Disability

An applicant for nursing home care must be either aged (65 or over), blind, or disabled (under the Social Security Disability definition). 40 T.A.C. §15.305(a). In practice, this requirement [being "disabled"] is never an issue, because the "medical necessity" requirement [for receiving skilled-nursing Medicaid benefits] (discussed next below) is more stringent than the "disability" requirement of Social Security. (See Section 4 below for Social Security definition of "disabled.")

C. Medical Necessity & Disability for Nursing Home & Community Based Care

An applicant must meet the "medical necessity" test for either nursing home Medicaid or for the Community Based Alternatives Program. 40 T.A.C. §§19.601-19.604. The initial assessment for medical necessity is made on form 3652-A (the CARE form) upon admission to the nursing home, [or program application] and a follow-up is done annually thereafter in most cases. The assessment is done by the Director of Nurses at the nursing home and by a nurse and physician employed by the insurance company contracted [for] by DHS (currently, National Heritage Life Insurance Co.). The agency's decision regarding whether or not someone meets the medical necessity requirement is appealable through the program's "fair hearing" process .

Essentially, someone meets the "medical necessity" requirement if they have a medical disorder or disease necessitating regular attention by registered or licensed vocational nurses. An inability to attend to the "activities of daily living," such as bathing, grooming, and eating, is not sufficient to meet the standard of medical necessity. See 40 T.A.C. §19.2402 et seq. for the applicable regulations.

The "disability" requirement to qualify for Community Care programs is less stringent than the medical necessity test described above. The Community Care programs require that the applicant meet the definition of being "disabled" as defined by the SSI program,(see discussion below) which [definition] is that the person have the need for assistance in at least some activities of daily living as determined by the assessment interview.

Community or Home Care programs provide assistance with bathing, dressing, toileting, food preparation, and housekeeping, etc [for qualified individuals in their homes or community placement]. The number of assistance hours an applicant will qualify for per week varies based on the caseworker's determination of the applicant's needs as gained from the assessment responses given to the caseworker by the applicant or their representative. Although the current regulations state that up to a maximum of 50 hours of assistance per week is available to qualified applicants, Department caseworkers state that they will provide no more than 35 hours of assistance per week to one applicant. These "assistance" hours do not include any medical benefits.

D. Income & Resource Limitations

The monthly income limitation for qualification for skilled nursing care under the Medicaid program for an unmarried applicant in calendar year 1998 is $1,482 in "countable" income. This amount is adjusted on January 1 of every year for inflation. The "resource" limitation for an unmarried applicant is $2,000. This amount has remained the same since 1989. See the discussion of "resources" below for how to determine what resources are "countable."

The financial restrictions for Community Based Care programs for an unmarried individual are the same as for skilled nursing (nursing home) Medicaid [as discussed above], except for a program called the "Family Care" program. This program allows individuals to have as much as $5,000.00 in available resources; however, the number of applicants accepted on this program is limited meaning that otherwise qualified applicants may be denied assistance because the program is full. See 40 T.A.C. §§481.6001- 48.6020 for regulations governing the Community Based Alternatives Programs.

"Income" for the programs is defined as the "receipt of any property or service a client can apply, either directly or by sale or conversion, to meet basic needs for food, clothing and shelter." And "countable income" is defined as "the amount of a client's income after all exemptions and exclusions." 40 T.A.C. §15.100 (Medicaid Eligibility Handbook §§2410-2411). This definition is broader than the income tax definition. For example, the Medicaid definition includes gifts and personal injury awards.

"Exempt income" is income that "is not counted in eligibility nor applied income determination." 40 T.A.C. §15.100. See 40 T.A.C. §15.460, (Medicaid Eligibility Handbook §2420-2421) for income exemptions. ("Applied income" is the amount of the client's income that is paid toward ("applied to") his or her nursing home or other care.) Important examples of exempt income include the value of medical services provided free or for which someone else pays the provider directly, payments to providers of social services by a government program, and specifically defined "infrequent or irregular income."

The following are erroneously listed as "exclusions" in the Medicaid Eligibility Handbook. Actually, they are "exemptions," because they are not counted for determining either eligibility or applied income: VA aid-and-attendance allowances, VA reimbursement for unusual medical expenses, and VA housebound allowances. 40 T.A.C. §15.465(e)(1) (Medicaid Eligibility Handbook §2435,2436).

"Excluded income" is income that "is not counted when determining eligibility but that is counted to determine applied income." 40 T.A.C. §15.100. See 40 T.A.C. §§15.460-15.465 (Medicaid Eligibility Handbook §§2430-2439) for income exclusions.

The payment of nursing home care by the Veterans Administration does not affect Medicaid eligibility. 40 T.A.C. §15.455(c)(3)(D); Medicaid Eligibility Handbook §2452.33. Therefore, it is clear that clients may apply immediately for Medicaid, despite potential VA eligibility; and subsequent establishment of VA eligibility will not result in a break in Medicaid benefits. This can be important if Medicaid is needed for services not covered by Medicare, such as medications, and to avoid Medicare's co-payments and deductibles.

E. Rules Affecting Rental Income

Rental income is most commonly a concern when an exempt residence, which is an applicant's homestead, is being rented for cash. In general, countable rental income is gross income received, less actual expenses such as (but not limited to) property taxes, utilities, maintenance, repairs and advertising. 40 T.A.C. §15.455(e)(4); Medicaid Eligibility Handbook §2453.4. A new department rule adds the following provisions:

F.Rental payments made to an applicant's agent under a power of attorney are always treated as received by the client. Payments to other "responsible parties" who provide a statement that they are not making the payments available to the applicant are not treated as received by the applicant, if they made the rental agreement with the tenant. Mortgage payments made by a tenant to the mortgage company are treated as countable income to the applicant; but if the residence is vacant and someone other than the applicant pays the mortgage, those payments are not treated as income.

G.Rental property expenses are deducted only for the month in which they are paid, regardless of when the expenses are incurred. (Note: This provision appears inconsistent with the established rule that fluctuating income is subjected to six-month averaging, at least in the applied income calculation (after eligibility is established). Department sources say, however, that they will in fact continue to apply the six- month averaging rule in the discretion of the eligibility worker. See Medicaid Eligibility Handbook §2464.)

Note: In the past, it has worked well to rent the (homestead) residence to a tenant who agrees to pay all taxes, insurance, maintenance, repairs and other expenses in lieu of rent. The expenses exactly offset the rent payments made, so there is no net income to be counted; and the residence is maintained at no net expense to the client. Because the total paid is usually less than fair market value of the rent, this is also a good deal for the tenant, who is usually a family member. This would appear to still be an option under the proposed [Department] rules, so long as a mortgage payment is not [being made by the tenant to the mortgage company] as stated above.

H. Available or Countable Resources

"Resources are cash, other liquid assets, or any real or personal property or other nonliquid assets owned by a client, his [or her] spouse, or parent, that could be converted to cash." 40 T.A.C. §15.100, Medicaid Eligibility Handbook §2310. Instruments that produce income, such as promissory notes and bonds, are counted as resources to the extent of their fair market value; and in addition, the payments received by the client are counted as income in the month received. If there is a mortgage on real property or a security interest on personal property, only the equity value is counted.

Resources are counted only as of 12:01 a.m. on the first day of each month. Changes from that time until one month later do not affect countable resources for that month. Countable resources are reduced by the amount of funds encumbered before 12:01 a.m. of the first day of the month. That is, if a check is outstanding at that time, the bank balance at the time is reduced by the amount of the check for the purpose of determining countable resources. 40 T.A.C. 1§15.400(a),(b), 15.435(b)(2), Medicaid Eligibility Handbook §2310.

To be counted, resources must be both owned (solely or in part) by the applicant and "accessible to" to the applicant. "If a client has the right, authority or power to liquidate the property or [her or] his share of it, the property is a resource. If a client would be required to seek court action to access or dispose of property, that property is not considered a resource." 40 T.A.C. §15.415(a),(b), Medicaid Eligibility Handbook §2313. A client's resources are considered available to her or him when they are being managed by a legal guardian, agent under a power of attorney, or other fiduciary agent of the client, unless a court denies the guardian or agent access to the resources. 40 T.A.C. §15.415(e),(f), Medicaid Eligibility Handbook §2313.4. [Further, as will be discussed more fully in Section V below resources held in qualifying trusts will not be included in the client's countable resources.]

If a client has a joint bank account and they can legally withdraw funds from it, all of the funds in the account are considered a resource of the client. However, this is only a presumption, and the client must be allowed an opportunity to prove that some of all of the funds are the property of someone else. 40 T.A.C. §15.43(m), Medicaid Eligibility Handbook §2331.3.

If an applicant converts one type of property to another type, the new property may or may not be counted as a "resource." If the Department policy does not count the type of property that has been acquired by the conversion, then the new property is not a countable resource. Any cash received from the sale of a resource is considered a resource, not income. 40T.A.C. 1§15.420, 15.440(c), Medicaid Eligibility Handbook §§2314, 2344. By contrast, a "lump sum payment" other than from conversion of a resource is countable income in the month it is received (so it will usually result in at least one month's disqualification) and is a countable resource thereafter. 40 T.A.C. §15.450(b), Medicaid Eligibility Handbook §2411. Example of "lump sums" are inheritances, death benefits, personal injury awards, and payments of retroactive public benefits. Death benefits are excluded as income when they are used to pay the last illness and burial expenses of the deceased; and they are excluded as resources to the extent they have not been so used by the first day of the second calendar month after the month in which they are received. 40 T.A.C. §15.435(1), Medicaid Eligibility Handbook §2332.5.

I. Excluded Resources

The following is a summary of type of property excluded from consideration as "resources." It is not intended to cover every detail in the legal sources but rather to provide a plain-language checklist and source of citations.

The applicant's home is exempt, meaning one principal place of residence. The following rules apply to qualifying the property as a residence:

Intent to return required. The fact that the client lives in a nursing home does not preclude exclusion of a home. What is required is that the client express an intent to return to the home on Form 1245, Statement of Intent to Return Home. If the client lacks the capacity to do this, it can be done by a relative, representative payee, legal guardian or physician. The caseworker must also obtain a corroborating statement from one of those persons. Neither the law nor the Department's practice requires that there by any particular likelihood that the client will in fact be able to return home. 40 T.A.C. §15.441(a)(3), Medicaid Eligibility Handbook §2341.12. If a spouse or dependent relative (in certain specified degrees of kinship) lives in the home, it is excluded, apparently without any intent of the client to return. 40 T.A.C. §15.441(a)(4) (and see 40 T.A.C. §100 for definition of "relative"), Medicaid Eligibility Handbook §2341.13.

Home must be in Texas (usually). A home located outside Texas cannot be excluded. 40 T.A.C. §15.441(a)(2), Medicaid Eligibility Handbook §2341.11. However, if the community spouse lives outside Texas, her or his home can be excluded for the purpose of initial eligibility, subject to the requirement that title be transferred to the community spouse before the first annual review. 40 T.A.C. §15.441(a)(9), Medicaid Eligibility Handbook §2341.11.

Sale of the home. Placing the home on the market for sale does not make it a resource. If the client is purchasing a replacement home, the proceeds of the sale of the original home are not countable resources until the end of the third full calendar month after their receipt. 40 T.A.C. §15.441(a)(6),(10), Medicaid Eligibility Handbook §2341.15, 2341.16.

Burial Spaces. A "burial space" or agreement that represents the purchase of a burial space held for the burial of the client, his or her spouse, or any other member of the client's "immediate family" is excluded, regardless of value. "Burial space" includes a burial plot, grave site, crypt, mausoleum, casket, urn, niche, or other repository, plus reasonable improvements or additions including vaults, headstones, markers or plaques, caskets, arrangements for the opening and closing of the grave site, and contracts for maintenance of the grave site. "Immediate family" includes the client's spouse, minor and adult children, stepchildren, adopted children, brothers, sisters, parents, adoptive parents, and the spouses of those individuals. It does not include grandchildren or the client's spouse's immediate family. If the relationship is by marriage only, the marriage must be in effect for the exclusion to apply. 40 T.A.C. §15.441(b)(6)(A),(B), Medicaid Eligibility Handbook §2341.5.

Burial Funds. A maximum of $1,500 of separately identifiable burial funds, plus interest or other earnings after designation, is excluded. These funds may be in cash, financial accounts, securities or revocable burial arrangements. The designation is done on DHS Form 1252. The value of irrevocable burial arrangements and face value of excluded life insurance is set off against the $1,500 exclusion. The designation can be made retroactively, and caseworkers are instructed to allow clients to do so if that will make them eligible. 40 T.A.C. §15.442(e), Medicaid Eligibility Handbook §2342.5.

Prepaid Burial Contracts. An irrevocable, prepaid burial contract is excluded, regardless of its value. 40 T.A.C. §15.435(h), Medicaid Eligibility Handbook §2331.9. All prepaid burial contracts sold before September 1, 1993 were required by law to be revocable as to 90% of the proceeds. Therefore, unless a contract of this type is made irrevocable, 90% of its value counts toward the $1,500 burial fund minimum.

One Automobile. The value, of up to a maximum amount of $4,500, of one automobile is excluded. If the vehicle owned is worth more than $4,500, the value over $4,500 is counted as a resource. However, the automobile is excluded without regard to its value if it is used for any of the following purposes:

Transportation to or from work or in a trade or business by the client or the client's spouse; or

Transportation of a handicapped individual, and the automobile is especially equipped to permit the individual to drive it; or

Transportation for treatment for a specific or regular medical problem of the client, client's spouse, or any member of the household (presumptively, an average of at least four times per year). 40 T.A.C. §15.442(a), Medicaid Eligibility Handbook §2342.1.

Household Goods, Personal Effects, and Life Insurance. If the client's equity in the household goods and personal effects items exceeds $2,000, it is counted as a resource. 40 T.A.C. §15.442(b), Medicaid Eligibility Handbook §2342.2. If the client is married and the client's spouse lives in the community, all personal and household effects are excluded, regardless of their value. 42 U.S.C.A. §1396r- 5(c)(5), Medicaid Eligibility Handbook §2342.2. Term life insurance with no cash value is excluded, regardless of the amount of the death benefit. 40 T.A.C. §15.442(d), Medicaid Eligibility Handbook §2342.4. With cash value insurance such as whole life, universal life, etc., the cash value (not including dividend additions) is counted as a resource. However, if the total face value of the policies owned by the client is $1,500 or less, the cash value is excluded. 40 T.A.C. §15.442(c), Medicaid Eligibility Handbook §2342.3.

Assets Held in Trust. Generally speaking assets held in trust are counted as resources available to the client if the client has the authority to revoke the trust; or if the trustee has discretion to make distributions to the client and the client contributed the property to the trust, i.e. the trust is "self-settled." This is true unless the trust falls into one of the categories of exempt ("qualifying") trusts identified in Section 5 below.

IV. SOCIAL SECURITY DISABILITY PROGRAMS: "DIB" AND "SSI"

A. Defining Disability

The Social Security Disability benefits programs are federally funded health care and income assistance programs. The programs are administered by the Social Security Administration ("SSA") and are available to individuals who meet the SSA definition of "disabled." SSA's definition of disabled is "the inability [of a person] to engage in substantial gainful activity due to a medically determinable mental or physical impairment which can reasonably be expected to last 12 months or result in death." 20 C.F.R. 404.1505. Only individuals who meet this definition of disabled are allowed to receive benefits under the various disability programs. As is the case with Medicare and Medicaid, access to the benefits is based on whether or not the claimant has paid into the system through taxable wage contributions, or is based on the individual meeting the program's guidelines relating to income and asset restrictions.

B. Disability Insurance Benefits

Social Security Disability insurance benefits ("DIB") are monthly income payments available to people, or their dependents, if the individuals have paid in sufficient contributions to the program through their employment taxes. Similar to Social Security Retirement payments, DIB benefits are monthly cash payments made to the disabled person. The amount of the income benefit is based on the age of the applicant and the total amount of their contributed payments. 42 U.S.C. §402 et. seq. As is the case with Social Security Retirement benefits, when someone qualifies to receive DIB monthly payments, they are also qualified to receive health care coverage through the Medicare program. Because the amount of monthly benefit paid is calculated not on the claimant's financial needs but on the amount the claimant has contributed through their taxes, DIB is not an income or asset-restrictive program within the context being discussed in this paper. Therefore, the rules and regulations for assistance under this program will not be addressed here since we do not need to utilize special trust structures to qualify clients for DIB benefits.

C. Supplemental Security Income

Supplemental Security Income ("SSI") is a monthly cash income assistance program intended to help pay for the applicant's food, clothing, and shelter. 42 U.S.C §1381 et. seq. As such, the benefits are designed to supplement the income or assistance otherwise available to aged, blind, or disabled citizens who meet the asset and income restrictions of the program. The SSI program's monthly payments are based on the total amount of monthly income the person receives, including but not limited to, wages earned, payments available through other government assistance programs, gifts of money or property, and the value of "in- kind" support which can be applied toward for food, clothing, or shelter. The program also applies the same asset (countable resource) restrictions as are applied for the Medicaid program. Social Security Act §1902(a)(10)(ii)(V), 42 U.S.C. §1396a(a)(10)(A)(ii)(V). See Section 3 above and 42 U.S.C. §1382(b) for a list of SSI resource exclusions.

The monthly income cap for SSI qualification is lower than that of long term care Medical Assistance Only Medicaid discussed above ($1,482.00 per month). The current monthly available earned income allowance for SSI qualification for an unmarried person is $514.00. Income is defined for SSI purposes at 20 C.F.R. §416.1100-416.1182, and is generally regarded as "anything you [the SSI recipient] receive in cash or in kind that you can use to meet your needs for food, clothing, and shelter." See also Social Security Administration Programs Operational Manual System (POMS) at SI101120.200J.3.

SSI assistance payments are made to any qualified aged, blind, or disabled person. Unlike DIB benefits, eligibility for benefits does not depend on whether or not the individual has made payments into the program through specific tax contributions or wage withholding.

D. SSI and Medicaid

Further, in Texas, anyone who qualifies to receive SSI payments also qualifies to receive health care general insurance coverage under the Medicaid program. The type of Medicaid included in SSI benefits covers payments for health care costs such as doctor visits, hospital charges, and prescriptions, etc. This is not the same Medicaid program coverage as outlined more fully above in Section 3 which also includes information on Medicaid program coverage for long term (nursing home) care (referred to Medical Assistance Only coverage).

SSI Rule for Property Held in Trust. As was stated above regarding Medicaid restrictions, generally, property held in a trust is a countable resource for SSI purposes if the client "has legal authority to revoke the trust and then use the funds to meet his [or her] food, clothing or shelter needs, or if the individual can direct the use of the trust principal for his/her support, and maintenance under the terms of the trust, the trust principal is a resource for SSI purposes." POMS SI 01120.200D.1.a. (Mar. 1994). This is true unless the trust falls into one of the categories of exempt ("qualifying") trusts discussed below. However, because SSI is an income assistance program, cash distributions from a qualified trust made directly to a trust beneficiary, even if that cash is then used by the beneficiary to purchase what would otherwise be an excluded resource, will be counted as income to the beneficiary and may, therefore, disqualify the beneficiary from SSI and Medicaid.

Because the SSI program is asset and income-restrictive, the use of special trusts can aid in qualifying a client for SSI benefits including Medicaid health insurance benefits. This is very important in assessing our client's needs because very often the disabled or incapacitated client may not need skilled-nursing care and Medicaid benefits for that type of assistance, but will need health insurance benefits, such as payments for prescriptions, hospitalization, and doctor visits. And, as each of us knows, it also is often true that private insurance companies will typically discontinue or refuse health care coverage for disabled or incapacitated claimants if their disability is permanent.

V. GETTING DOWN TO IT. USING SPECIAL TRUSTS TO QUALIFY FOR BENEFITS ASSISTANCE AND TO CONSERVE CLIENT INCOME & ASSETS

A. Sheltering Otherwise Disqualifying Assets in Special Trusts

The SSI and Medicaid trust rules discussed above make the use of special trusts of primary importance to the practioner when making a determination about the type of special trust to be utilized for a client. By sheltering the client's assets that exceed those allowed by Medicaid, SSI, and other programs' restrictions in a "special," "disability," or "qualifying" trust, (one of the types of self-settled statutory "1396 SNTs," or third-party, nonself-settled "common law SNT") and designating the client as the beneficiary of the trust, the client may still be able to qualify for Medicaid, SSI, and/or other program benefits even though the assets held in the trust far exceed the resource limits allowed by the programs.

B. Client Circumstances

There are several questions to consider in deciding which special trust structures, if any, would be best suited to such a client's needs. As will be clearly demonstrated in the client profiles discussed below, the following factors are always relevant in making these determinations:

The age of the client;

The nature of the client's disability or incapacity (physical and/or mental impairment);

Whether or not the client currently owns or has a present right to receive disqualifying assets;

The character and value of all of the client's assets;

The client's present and future medical assistance needs;

Whether or not the client is under guardianship or is in need of guardianship;

Whether or not the client is presently involved in a lawsuit; and

Whether or not the client has a surviving parent, grandparent, or legal guardian.

C. Categories of Special Trusts

As stated in the introduction to this paper, as used herein, the term "special trust" refers to one of the following types of trust which are used to qualify a client for government assistance:

§1396 Individual Supplemental Needs (self-settled under age 65)Trusts (created under 42 U.S.C. §1396p(d)(4)(A);

§1396 Pooled Interest Supplemental Needs (self-settled over or under age 65) Trusts (created under 42 U.S.C. §1396p(d)(4)(C);

§867 Trusts with Supplemental Needs Provisions (created under §867 of the Texas Probate Code and 42 U.S.C. §1396p(d)(4)(A) and (C);

§142 Trusts with Supplemental Needs Provisions (created under §142.005 of the Texas Property Code and 42 U.S.C. §1396p(d)(4)(A); and

Third Party Individual Supplemental Needs (nonself-settled no age limitation) Trusts (created by case law).

As the discussion in the following sections will illustrate, answering the questions posed in Section 5.2 above will direct the practioner to the type of trust that must be used to protect the beneficiary's assets and allow the beneficiary to qualify for program assistance.

VI. QUALIFYING COURT-CREATED SUPPLEMENTAL NEEDS TRUSTS

A. Defining the Trusts

Basically the group of trusts referred to as "Supplemental Needs Trusts" (or "SNTs"), sometimes also referred to as "Special Needs Trusts," are trusts which, if properly created under state and federal benefits laws, insulate the assets of a disabled person that are placed in the SNT from being counted against that person (who is the SNT beneficiary) when the beneficiary is being considered for, or is receiving, asset or income-restrictive government program assistance, such as SSI and/or Medicaid. The trusts allow the disabled beneficiary to financially qualify for programs which they otherwise would not be able to qualify for because of their income or assets exceed the income and resource limitations placed on program recipients. (See discussions above.) The various programs' rules grant exemptions from the income and resource limitations for any property that is held in qualifying SNTs, regardless of the value or type of the property held in the trust. 42 U.S.C.A. §1396p(d).

B. Court-Created Supplemental Needs Trusts

Trusts created under state law provisions, namely, §142 of the Texas Property Code and Section 867 of the Texas Probate Code are not trusts that, in and of themselves, are always used to qualify a disabled or incapacitated person for state and federal assistance programs. However, both the state and federal laws that control the assistance programs allow courts to create qualifying Supplemental Needs Trusts which insulate trust property from being counted as an available resource to the trust beneficiary. A court's power to create such a trust has always been recognized by the OBRA '93 legislation (42 U.S.C. §1396p(d)(4)(A) and (C)) and with the 1997 state legislative changes to the Texas Trust and Probate Codes, Texas courts have now been granted the specific power to create and amend court-created trusts to include §1396 SNT provisions.

Therefore, the requirements for creating trusts under §§142 and 867 will be discussed here along with the federal regulations affecting the creation and use of Supplemental Needs Trusts. 42 U.S.C. §1396p(d)(4) (A) and (C), and Tex Prop. Code §142.005, and Tex. Prob. Code Ann.§§867–873.

VII. THE PURPOSE, MANAGEMENT, AND CREATION OF SUPPLEMENTAL NEEDS TRUSTS

A. Purpose of an SNT

The purpose of a Supplemental Needs Trust is to use trust assets, corpus and income, specifically to supplement the care, coverage, and assistance benefits being provided to the disabled beneficiary by the government programs but not to supplant the coverage provided by the programs. To that end, typically the trust terms require that the Trustee be restricted from making trust distributions directly to the beneficiary, or to service providers, to pay for anything that could otherwise be paid for by government programs covering the beneficiary. If a Trustee does make such a distribution, the Trustee risks disqualifying the beneficiary from the benefits program and jeopardizes the protection of trust assets from being counted as an available resource to the beneficiary. See Clifton B. Kruse, Jr., O.B.R.A. '93 Disability Trusts–A Status Report, 10 NAELA QUARTERLY NO. 1 (Winter 1997).

B. Managing an SNT

The existing confusion with regard to allowable distributions from SNTs is certainly understandable when you consider all of the various government programs and all of the different program restrictions on counting a beneficiary's income and assets for program qualification. The confusion probably arises most often because of the sort of program interdependency described above in the discussions about SSI and Medicaid, for example. As was discussed above, if we can qualify our disabled client for SSI, the client will also be qualified to receive Medicaid assistance. However, SNT trust distribution problems may arise due to that fact that the SSI and Medicaid programs have different rules for counting the client's income and assets when considering the client's program eligibility.

C. Supplementing vs. Supplanting the Basic Approach

What, then, is the basic rule to keep in mind when making SNT distributions? If the program will pay for the good, service, care, or medical expense, etc., don't use trust distributions to pay for the same good, service, care, or medical expense. What that means in simple terms is that trust assets can be used to pay for anything that the benefit programs do not pay for, BUT CANNOT BE USED TO PAY FOR THE SAME BENEFITS and assistance that the programs do pay for.

Simply remember that using trust assets to pay for the same costs as those covered by the programs equates to using trust distributions to supplant the assistance covered by the programs. On the other hand, if the programs do not pay for the particular good, service, care, or medical expense, etc. and trust distributions are used to cover those expenses, that distribution equates to supplementing the assistance covered by the programs.

An Example of Supplementing: The Medicaid program will pay for the purchase of certain wheelchairs. The program will not pay for the purchase of a "sports wheelchair." If the trust beneficiary could benefit from and wants a sports wheelchair, clearly the trust could supplement the Medicaid assistance available by purchasing a sports wheelchair for the trust beneficiary. Further, the Medicaid program will allow a recipient to own a car, but the program will not pay for specially equipped vehicles to accommodate disabled persons. The assets in the SNT could be used to purchase or to specially equip a vehicle for the trust beneficiary.

An Example of Supplanting: The SSI program is designed to aid program recipients in meeting the costs of their food, clothing, and shelter. Therefore, using the assets of the SNT to purchase the beneficiary's food, clothing, and shelter would be supplanting the assistance provided by the program. However, computer equipment, televisions, stereos, vacation travel, books, entertainment expenses, etc. are not food, clothing, or shelter (or medical expenses for that matter). Therefore, trust expenditures for these expenses do not supplant the assistance being provided by the program.

Please note however, that the SSI program does have some complicated rules for counting "in-kind" payments for a recipient's "support" and those "in-kind" payments may lead to program disqualification. Schmitt Smith outlines some of the pitfalls of in-kind support and maintenance, or "ISM", payments within the SSI program in her NAELA article as follows:

If the beneficiary receives food, clothing or shelter as a result of payments by the Trustee to other persons, then the beneficiary will have income in the form of 'in-kind support and maintenance' (ISM). This is why the Trustee is directed to exercise his or her discretion under [the terms of] the trust agreement to make distributions which will supplement (i.e. [pay for] additional or extra items) and not [to] provide for the beneficiary's basic needs.

However, in many cases, the Trustee also has authority to make decisions which are in the best interest of the beneficiary. That may require examining carefully how the rules regarding "in-kind support and maintenance" will be applied. Problems can arise when "in-kind income" consists of food, clothing, or shelter. The beneficiary's SSI benefits will be reduced or eliminated [therefore placing any Medicaid assistance at risk] if he or she receives ISM.

The theory is that since SSI benefits are specifically intended to pay for a person's food, clothing, and shelter, if that person receives those goods or services from another source, [e.g. the beneficiary's trust] then less SSI benefits are needed. As a result, if you pay the beneficiary's rent, grocery bills, meals (for example, a restaurant meal), or purchase a coat for the beneficiary, you would be providing ISM to the beneficiary. In theory, you are then also reducing his or her need for SSI benefits.

There are sometime rather fine distinctions between allowable in-kind income and countable ISM. For example, you can pay for some travel arrangements but not for others (for example, charged plane tickets [are ok] – but not a hotel room, because that is shelter). You can pay for some entertainment expenses but not for others (for example, a movie pass [is ok] but a restaurant meal [is not], because that is food).

If you do give ISM to the beneficiary, his or her SSI benefits will be reduced as well, but not on a dollar-for-dollar basis, like with cash. There are two different formulas that Social Security uses to reduce the SSI benefits for a person who receives ISM. Which formula [that gets applied] depends on the household and living arrangements of the SSI recipient. Mary T. Schmitt Smith, "After the Wedding" Administration of Special Needs Trusts, Tuning Up the Trustee, National Academy of Elder Law Attorneys: NAELA Advanced Elder Law Institute November, 1997.

Aid for the Troubled Trustee. What then is a Trustee to do? How does a Trustee know which distributions are permitted and which are not, which costs are covered by which programs and which are not? You can read the benefits coverage materials and guidelines publications provided by the governing agencies and/or (if that is as daunting as trying to discern what is covered by your insurance policy) you can ask experienced practioners, the agencies' benefits counselors, or other trained caseworkers or care managers. If this information shows that the expense – a wheelchair, prescription medicines, medical service, shelter, food, whatever – is a cost paid for by the assistance program covering your beneficiary, apply the basic rule and, THE TRUSTEE SHOULD NOT PAY FOR THAT EXPENSE WITH TRUST FUNDS.

D. Qualifying Self-Settled and Nonself-Settled SNTs

There are really two types of Supplemental Needs Trusts, self-settled and nonself-settled, or third party settled, trusts. Both types work the same way and accomplish the same thing for the client. That is, the trusts insulate the assets placed in the trust so that those otherwise disqualifying assets are not counted as available resources to the trust beneficiary when the beneficiary applies for, or receives, benefits from an asset and/or income-restrictive governmental program such as SSI or Medicaid.

A self-settled SNT is one in which the trust corpus is made up of assets that either belonged to the trust beneficiary, or that the beneficiary had a present right to receive, prior to transferring the assets into the trust. Supplemental Needs Trusts created on behalf of the disabled or incapacitated person, which are funded with proceeds from the disabled person's personal injury cause of action, or their savings or investments accounts for example, would be considered a self-settled SNT.

On the other hand, a nonself-settled (or third party settled) supplemental needs trust is one in which the trust corpus is made up of assets that neither belonged to the trust beneficiary nor that the beneficiary ever had a present right to receive prior to transferring the assets into the trust. Supplemental Needs Trusts created on behalf of the disabled or incapacitated person by a third party and which are funded with property that passes to the trust by direction of someone's Will, or by inter-vivos transfer from the third party, for example, would be considered a nonself-settled SNT.

E. Creating SNTs - Features and Requirements

As will be shown in the discussion below, the requirements for creating valid nonself-settled supplemental needs trusts have been developed through case law. Therefore, the trusts are often referred to by practioners as "common law SNTs." The requirements for creating valid self-settled supplemental needs trusts are controlled by the state and federal laws and regulations mentioned above (i.e. SNTs created using §§142, 867 and 1396 ) and they are often referred to as "statutory SNTs". Although both types of trust are similar in that the trusts should be irrevocable and the terms should restrict the Trustee so that distributions cannot be made to pay for the same things that the public assistance program would otherwise pay for, the trusts have some significant differences.

F. §1396 (Self-Settled) SNTs and the "Payback Provision"

Perhaps the most significant difference in the required provisions of certain statutory self-settled vs. common law nonself-settled trusts is what is referred to as "the payback provision." The payback rule, found in the provisions of 42 U.S.C. §1396(p)(d)(4)(A) and (C), requires that qualifying trusts created under that statute must direct that on the death of the beneficiary, the state Medicaid program is entitled to be paid back from any remaining trust assets, an amount that is equal to the costs paid by the program on behalf of the beneficiary. There is no such payback provision requirement for nonself-settled, or common-law SNTs. Clearly then, of primary importance to the practioner when deciding which special trust structure to use for a disabled client is the question of whether or not the client already owns, or has a present right to receive, the otherwise disqualifying assets that will be placed in the special trust. If the client is going to receive the asset as a gift or a bequest in a Will, for example, we would want the grantor to create the supplemental needs trust before the property is actually received by the disabled person/beneficiary and then we would avoid using a trust structure with any payback provision language in it. Conversely, if the client already owns the disqualifying asset, and the client meets the other requirements of the state and federal statutes for using a special trust , see discussions below, then we would create the supplemental needs trust according to the statutory requirements using the required payback language and transfer the client's otherwise disqualifying assets into the self-settled trust.

G. Defending the Payback Provision

One thing that needs to be kept in mind and understood about the payback provision required by 42 U.S.C. §1396p(d)(4), however, is that the law places no obligation whatsoever on the trust(ee) to reserve or conserve any trust assets during the beneficiary's lifetime in order to cover the payback obligation. In fact quite the opposite is true. It is the intent of the OBRA '93 legislation that the trustee spend any and all amounts necessary from trust assets to improve the quality of life and care available to an SNT beneficiary. If the trust has no money remaining in it at the beneficiary's death, there is no obligation on the trust, the beneficiary, or his or her estate or heirs, to satisfy the payback provision. Or if the remaining assets are insufficient to cover all of the costs of the assistance provided, there is no obligation to satisfy the payback provision in full. If all of the trust assets are spent on the beneficiary's supplemental needs during the beneficiary's lifetime, the trust is closed when its assets are gone and the state Medicaid program receives no payment at all against the costs of the benefits provided to the beneficiary.

To illustrate these points, if the trust has $350.00 in it when the beneficiary dies and the beneficiary has received $176,000.00 in Medicaid assistance, the payback requirement is fully met by paying the state back $350.00. The balance of the costs for services provided to the beneficiary is forgiven and no further "payback" is required . On the other hand, if the beneficiary has received only $350.00 in Medicaid assistance when she or he dies and the trust has $176,000.00 in it, the state receives $350.00 from the trust and the remaining assets pass on to the beneficiary's estate or heirs. Or, if all of the $176,000.00 in the trust has been spent on the beneficiary and the beneficiary is still living, the trust can be closed and the state has no right to receive any costs back from the beneficiary for the assistance that the beneficiary has received. And, in this last case, since the beneficiary is still living, the beneficiary continues to stay eligible for all program benefits and continues to receive the medical coverage and other assistance that the programs offer.

The thing we should remember when considering the pros and cons of creating self-settled statutory SNTs for our clients is the reality that, in most cases, without the trust and its potential for conserving and slowing down the financial drain on the client's otherwise disqualifying assets , the client would in all likelihood have to spend all of their own resources paying for the costs associated with meeting their needs during their lifetime anyway. Therefore, the client is clearly no worse off for having created and utilized the §1396 trust. By taking advantage of qualifying the client for government assistance through the use of the statutory self-settled trust, we may not totally avoid the circumstance of depleting the client's resources, or paying back the state when the client dies for program coverage received, but we may be able to better maximize the client's resources thereby allowing us to pay for some of the client's supplemental quality-of- life needs. We may also be able to increase the earning and investment power of the client's financial resources, thereby extending the amount of time that the financial resources are available to the client for those supplemental needs.

VIII. SECTION 1396 INDIVIDUAL (Self-Settled) SUPPLEMENTAL NEEDS TRUSTS

A. §1396p(d)(4)(A) - Individual, under Age 65, Self-Settled SNT

"OBRA '93" states that an individual shall not be ineligible for medical assistance so long as the individual's assets are held in a trust for that individual's sole benefit and the trust meets the following requirements:

A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3) [42 U.S.C.§1382c(a)(3)]), [the Social Security definition discussed above] and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title. [42 U.S.C. §1396p et seq.] 42 U.S.C. 1396p(d)(4)(A).

Clyde Farrell, in pgs. 69-70 of his paper cited herein, explains this "exception" to the self-settled trust rules:

Client eligibility requirements. This "exception" to the self-settled trust rules is available only to persons meeting the following requirements:

[Disabled person must be] under age 65 at the time the trust is established. After the client reaches age 65, the trust's "exception" status continues as to assets transferred into it before [the client reached] age 65, but assets cannot be added after the client turns 65.

[The client must be] disabled as defined in the requirements for Social Security Disability or SSI benefits. (See above discussion for definition applied by the Social Security Administration.)

Trust [eligibility] requirements. [The trust must:]

[The trust must be] established for the [sole] benefit of the client by a parent, grandparent, legal guardian of the client, or a court.

The [trust must direct that the] State will receive all amounts remaining in the trust upon the death of the client, up to an amount equal to the total Medicaid payments made for the client. [This is the payback provision discussed above.]

Although the statute is silent as to provisions for distributions of corpus to or for the beneficiary, it is probably necessary that such distributions [also as discussed above] either be entirely discretionary with the trustee, or limited to distributions that will "supplement and not supplant" public benefits. If "support" requirements are included, Social Security will argue that the corpus is "available" because the beneficiary could compel distributions.

[Further, although not required by the federal regulations, most practioners agree that the trust should be irrevocable in order to insure that trust assets will not be counted as available resources by some state agencies when applying the federal and state rules. See Mr. Farrell's paper regarding a client's SSI eligibility, for example.]

1. Client Profile Number One: §1396p(d)(4)(A) Individual (Self-Settled) Supplemental Needs Trust

Ms. Jones is 46 years old and, according to the evaluations of her treating physicians, she is totally incapacitated and physically disabled as a result of a car accident in which she was seriously injured five years ago. Mr. and Mrs. Ekright are Ms. Jones' parents. The Ekrights are 72 and 69 years old respectively and they live modestly on their own individual retirement benefits. Ms. Jones currently resides in a skilled- nursing facility in Austin where she receives ongoing and continuous medical care. Ms. Jones is paying approximately $25,300.00 per month to the nursing home for her care plus incidental charges for medicine and other necessities.

Most of Ms. Jones' financial support is derived from the personal injury settlement awarded to her as a result of her accident. In 1994 Ms. Jones received a lump sum settlement payment for her injuries in the amount of 6.3 million dollars. Ms. Jones' only form of monthly income is a government disability payment (DIB) of $385.00 per month. Ms. Jones has no other assets, nor does she have any real property that she owns.

Because Ms. Jones had been employed during most of her adult life and she had paid Social Security withholding taxes, Ms. Jones receives monthly Social Security Disability and Medicare benefits, however, she has no private health insurance coverage available to her. The Medicare program does not provide coverage for the majority of the costs associated with Ms. Jones' nursing home care. It is estimated that Ms. Jones' remaining financial resources, of slightly less than 3.7 million dollars will be completely depleted during her lifetime, probably within the next eight to ten years, because of the high costs of her care.

The nature and extent of Ms. Jones' lasting disabilities will require that she continue to reside in a nursing home for the rest of her life. Ms. Jones was left both physically disabled and mentally incapacitated as a result of her injuries. Most of the costs of Ms. Jones' nursing home care would be paid for her, at substantially no cost to her, if she could qualify for Medicaid and get placed in a "Medicaid bed" at the nursing home.

Ms. Jones does have additional needs which would not be covered by Medicaid, such as specialized computer equipment and speaking devices which could assist her in communicating with her family, friends, and health care providers. She could benefit from specially equipped and outfitted wheelchairs and portable medical equipment that could make it possible for her to leave the nursing home for short outings such as sight seeing or family visits with her parents.

Ms. Jones also has a daughter, Susan, who is a school teacher in Seattle, Washington. Ms. Jones has a new grandson, Susan's only child, that Ms. Jones has never seen. It would be of tremendous emotional benefit to Ms. Jones to see her daughter again and to meet her only grandchild. When she was working, Ms. Jones would help with the costs of Susan making trips home by sending her daughter airline tickets for Christmas and her birthdays.

Although qualifying Ms. Jones for Medicaid assistance would help her meet her medical costs, the Medicaid program would not cover any of the costs of Ms. Jones' "other" or "special" needs. However, with a properly drafted §1396p(d)(4)(A) trust, the remaining money from Ms. Jones's personal injury settlement can be placed in the trust and Ms. Jones can qualify for Medicaid assistance and immediately begin reducing the amount she spends from her own resources toward the costs of her care. Ms. Jones' "special needs" could then be paid for by the assets held in her trust.

2. Analysis of Ms. Jones' §1396(A) Individual's Supplemental Needs Trust

The above facts clearly show us that Ms. Jones would meet the qualifications for creating a statutory SNT under federal law and the requirements of 42 U.S.C. Section 1396p(d)(4)(A) as follows:

Ms. Jones obviously owns her personal injury award proceeds. By definition, the proceeds of a personal injury cause of action in these circumstances are the property of the injured person. Therefore, Ms. Jones' trust would be a self-settled trust.

Ms. Jones is under age 65; she is disabled according to the Social Security disability definition; she has a parent who can create her trust for her; and the trust terms can require that, upon her death, the state of Texas will receive any remaining assets in the trust, up to an amount equal to the cost of the Medicaid assistance that has been provided to her.

It is a virtual certainty that, without Medicaid assistance, Ms. Jones will spend all her existing financial resources to pay for her required nursing home and medical care. Given the financial demands of that care, Ms. Jones must conserve her resources and she cannot help pay for her daughter's and granddaughter's visits. She cannot afford the necessary portable medical equipment so she can safely leave the facility where she lives for short trips. She can't buy a television or stereo equipment, or more comfortable and attractive "home-like" furnishings for her nursing home room which is her constant living environment. She cannot afford to spend anything on massages or other similar "comfort" therapies that will just help her feel better physically. And the list goes on.

If Ms. Jones' money were put in a §1396p(d)(4)(A) SNT, she could immediately qualify for Medicaid assistance which would stop the dramatic drain on her personal resources caused by paying for her own medical care. The trust could pay for the supplemental needs described here and many more. The statutory "payback provision" is almost without consequence to Ms. Jones because, without Medicaid's assistance, Ms. Jones will have to spend all of her money paying for her own care anyway. Remember, there is no requirement in the payback provision that the Trustee conserve trust assets in order to pay the Medicaid program back for the cost of the assistance provided to trust beneficiaries. To the contrary, the Trustee is supposed to use the trust property to add to the quality of Ms. Jones' life and the quality of her required care. The irony is that once her money is all gone, without the existence of an SNT, then Ms. Jones would qualify for Medicaid program assistance.

As practioners, there should simply be no question for us that this type of trust structure would benefit a client like Ms. Jones.

NOTE: A SAMPLE FORM FOR A §1396p(d)(4)(A) TRUST CREATED BY A BENEFICIARY'S PARENT IS PROVIDED IN APPENDIX R.

B. §1396p(d)(4)(C) - Pooled Interest, over (or under) Age 65, Self-Settled SNT

"OBRA '93" states that an individual shall not be ineligible for medical assistance so long as the individual's assets are held in a trust for that individual's sole benefit and the trust meets the following requirements:

A trust containing the assets of an individual who is disabled (as defined in section 1614(a)(3)) [42 U.S.C.§1382c(a)(3)] that meets the following conditions:

(i) The trust is established and managed by a non-profit association.

(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

(iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) [42 U.S.C.§1382c(a)(3)] by a parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court.

(iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total medical assistance paid on behalf of the individual under the State plan under this title [42 U.S.C. §1396 et seq.] 42 U.S.C. 1396p(d)(4)(C).

Clyde Farrell, on pg. 71 of his paper cited herein, explains this "exception" to the self-settled trust rules:

Purposes. These trusts have essentially the same purpose as the Under-65 Supplemental Needs Trust. However, the "pooled" trusts do not have a maximum age requirement (but see the discussion below of possible applicability of [DHS' transfer penalty rule] if the client is 65 or over). Also, pooled trusts may offer more professional and efficient management and lower per-client setup costs.

Client eligibility requirements. The "exception" to the self-settled trust rules is available only to persons meeting the following requirements:

No age requirement. However, if the client is age 65 or over at the time the transfer [of assets] to the trust is made, according to a recent HCFA transmittal, the transfer penalty [period] will be applied. (State Medicaid Manual §3259.7B). Texas DHS representatives have made differing statements as to whether they intend to apply this interpretation, and at this writing no clear decision has been made.

[The client must be] disabled as defined in the requirements for Social Security Disability or SSI benefits.

Trust [eligibility] requirements. The trust must meet the following requirements:

The trust is established and managed by a non-profit association.

A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts.

Accounts are established in the pooled trust only for individuals who are disabled (as defined for Social Security and SSI benefits) by a parent, grandparent, or legal guardian of such individuals, by the individuals themselves, or by a court.

To the extent that amounts remaining in the client's account upon the death of the beneficiary are not retained by the trust, the State will receive all amounts remaining in trust upon the death of the client, up to an amount equal to the total Medicaid payments made for the client.

Note: The ARC (Association of Retarded Citizens) of Texas is currently operating a qualifying pooled interest trust in Texas that accepts contributions from anyone residing in the state. The trust is already established so while it is not necessary to pay an attorney to draft the trust, individuals should seek legal counsel for estate planning advice on the effects of designating remainder beneficiaries, including family members or others, and/or allowing the trust to retain remaining assets, if any. Information about the existing trust is available through ARC at 1-800-252-9729 or 454-6694 from Austin.

1. Client Profile Number Two: §1396p(d)(4)(C) Pooled (Self-Settled) Supplemental Needs Trust

The facts supporting creating a §1396p(d)(4)(C) trust for Ms. Jones are the same in this client profile as they are stated in client profile number one above except that, Ms. Jones is currently 67 years old and she was not left mentally incapacitated as a result of her car accident although she is severely physically disabled. Also, Ms. Jones' only surviving family members are her mother who is 88 years old and her daughter, Susan, who is an executive with Microsoft and is financially well-situated and independent. Susan has never married and has no plans to do so or to have any children. Ms. Jones' grandparents have been dead for many years. All other facts for Ms. Jones remain the same.

2. Analysis of Ms. Jones' §1396(C) Pooled Interest Supplemental Needs Trust

Since Ms. Jones has the mental capacity to make her own decisions, and she does not need a parent, or grandparent, or legal guardian to create a trust for her, under the provisions of 42 U.S.C. §1396p(d)(4)(C), Ms. Jones can decide to transfer her disqualifying assets to an existing pooled interest trust such as the one established by the ARC of Texas. The assets in her account can be held and managed for Ms. Jones and used, during her lifetime, to meet her supplemental needs

Further, because of her mother's age and Susan's own financial independence, Ms. Jones would prefer that if she has any funds remaining in her trust account at the time she dies, that the remaining money be kept by the non-profit organization to be used to help others who may need such assistance rather than the remaining assets going to family members or to pay back the state Medicaid program.

Therefore, Ms. Jones can transfer her assets to the pooled interest trust, and direct that the rest of the money remain in the pooled trust for the benefit of other disabled people served by the trust.

IX. COMBINING STATE AND FEDERAL LAWS TO CREATE SPECIAL TRUSTS

A. Utilizing §867 of the Texas Probate Code to Create §1396 Trusts

It is not always possible to create a §1396 trust without also employing state trust laws which is another reason why special trusts can be creatures of both state and federal laws. For example, we saw that §1396 allows a parent, grandparent, legal guardian, or court to create the exempt trust for the disabled beneficiary. In the facts provided above for Ms. Jones, her parents could create her SNT for her. However, Ms. Jones does not have a parent or grandparent who can create her trust, to meet the requirements of §1396, we must use a legal guardian or court to do so.

Note: It is not the purpose of this paper to present a detailed discussion of court-created trusts in Texas. For a full history of court-created trusts and an in-depth discussion of Texas Property Code §142 and Texas Probate Code §867 Trusts and their requirements see: Glenn M. Karisch, Court-Created Trusts in Texas, State Bar of Texas Advanced Drafting: Estate Planning and Probate Law Course (1995), updated to reflect 1997 legislative changes (1998). Some of the information presented here on those trusts, including the chart and the sample forms found in Appendices A through Q, is from that paper and is used with Mr. Karisch's permission.

§602 of the Texas Probate Code, regarding the appointment of guardians, states:

A court may appoint a guardian with full authority over an incapacitated person or may grant a guardian limited authority over an incapacitated person as indicated by the incapacitated person's actual mental or physical limitations and only as necessary to promote and protect the well-being of the person. If the person is not a minor, the court may not use age as the sole factor in determining whether to appoint a guardian for the person. In creating a guardianship that gives limited power or authority over an incapacitated person, the court shall design the guardianship to encourage the development or maintenance o maximum self-reliance and independence in the incapacitated person.

And §601(13)(B) defines an "incapacitated person" to mean:

An adult individual who, because of a physical or mental condition, is substantially unable to provide food, clothing, or shelter for himself or herself, to care for the individual's own physical health, or to manage the individual's own financial affairs.

§867 of the Texas Probate Code, regarding the creation of trusts through legal guardianships, states:

On application by the guardian of a ward or by a ward's attorney ad litem at any time after the date of the attorney's appointment under §646 of this code, the court in which the guardianship proceeding is pending may enter any order that creates for the ward's benefit a trust for the management of guardianship funds if the court finds that the creation of the trust is in the ward's best interests. The order shall direct the guardian or another person to delivery all or part of the assets of the guardianship to a trust company or a state or national bank that has trust powers in this state. The order shall include terms, conditions, and limitations placed on the trust. The court shall maintain the trust under the same cause number as the guardianship proceeding.

Further, §868(d) of the Texas Probate Code states:

When creating or modifying a trust, the court may omit or modify terms required by Subsection (a)(1) or (2) of this section only if the court determines that the omission or modification:

(1) is necessary and appropriate for the ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the ward; and

(2) is in the ward's best interests.

When to Use a §867 / 1396(A) SNT. According to these provisions of the Texas Probate Code we can still qualify Ms. Jones for benefits assistance through the use of a special trust. The Probate Code states that a court will appoint a legal guardian for an incapacitated adult and then also create or modify a trust for the ward's benefit, including doing so in order to qualify the ward for public assistance, so long as: (1) an application to create the trust is filed by the ward's guardian or attorney ad litem after the ad litem has been appointed under Section 646 of the Code, and (2) the court finds that creation [or modification] of the trust is in the ward's best interest. Let's change the facts stated above for Ms. Jones slightly to show how the Probate Code allows us to create a self-settled, 1396(A) SNT for people who are either in need of, or under, guardianship.

1. Client Profile Number Three: §§867 / 1396p(d)(4)(A) Individual (Self-Settled)Supplemental Needs Trust

The facts supporting creating a §§867 /1396p(d)(4)(A) trust for Ms. Jones are the same in this client profile as they are in client profile number one with one exception, Ms. Jones has no surviving parents or grandparents. In our new facts, the Ekrights were riding in the car with Ms. Jones and were involved in the same car accident. Unlike Ms. Jones, the Ekrights did not survive the collision. Ms. Jones' grandparents have been dead for many years. All other facts for Ms. Jones remain the same.

2. Analysis of Ms. Jones' §§867 / 1396(A) Individual SNT

Since Ms. Jones does not have a parent or grandparent who can create her trust for her, under the requirements of 42 U.S.C. §1396p(d)(4)(A), Ms. Jones' trust must be created by her legal guardian or by a court acting on her behalf.

According to Ms. Jones' treating physicians she is a totally incapacitated adult as defined above by the Texas Probate Code, therefore she meets the requirements of state law to have a guardian appointed for her.

Ms. Jones' daughter, Susan, can apply to be appointed as Ms. Jones' legal guardian, and once she has been appointed, she can petition the court to create Ms. Jones' SNT. Or, as part of representing Ms. Jones in the guardianship proceedings, the attorney ad litem appointed by the court for Ms. Jones can make the same application for creation of a trust to the court.

NOTE: SAMPLE FORMS FOR THE COURT PLEADINGS AND TRUST DOCUMENTS TO ESTABLISH GUARDIANSHIP AND CREATE SECTION 867 MANAGEMENT AND 1396(A) SUPPLEMENTAL NEEDS TRUSTS ARE PROVIDED IN APPENDICES K THROUGH P.

3. Client Profile Number Four: §§867 / 1396p(d)(4)(C) Pooled Interest (Self-Settled) Supplemental Needs Trust

Note: As is mentioned in Mr. Karisch's paper on court-created trusts cited herein, there may be differing	views among courts and practioners as to whether or not a pooled interest trust can be created using the provisions of §§867-873 of the Probate Code. This author agrees with Mr. Karisch, however, that is probably possible to create pooled interest trust accounts under the Probate Code provisions. The following analysis is provided subject to that caveat.

The facts supporting creating a §1396p(d)(4)(C) trust for Ms. Jones are the same in this client profile as they are stated in client profile number three above with the exception that, Ms. Jones was left mentally incapacitated, as well as, physically disabled by her car accident. Also, Ms. Jones worked as a special education teacher in Austin before she was injured.

4. Analysis of Ms. Jones' §§867 / 1396(C) Pooled Interest SNT

Since Ms. Jones is mentally incapacitated and she does not have a parent or grandparent who can create her trust for her, under the requirements of 42 U.S.C. §1396p(d)(4)(C), Ms. Jones' trust must be created by her legal guardian or by a court acting on her behalf.

According to Ms. Jones' treating physicians she is a totally incapacitated adult as defined above by the Texas Probate Code; therefore she meets the requirements of state law to have a guardian appointed for her.	Susan believes, from knowing her mother's feelings prior to her accident, that Ms. Jones would want to leave any money she had left at the time of her death to benefit other disabled people.

Susan can apply to be appointed as Ms. Jones' legal guardian, and once she has been appointed, she can petition the court to establish a Pooled Interest SNT trust account for Ms. Jones. Or, as part of representing Ms. Jones in the guardianship proceedings, the attorney ad litem appointed by the court for Ms. Jones can make the same application to the court for creation of a trust account.

The following discussion of §142 trusts illustrates how to use a court, if a lawsuit is pending, to create a §1396(A) trust when guardianship is either inappropriate or unnecessary for the disabled client.

§142.005 of the Texas Property Code states:

In a suit in which a minor who has no legal guardian or an incapacitated person is represented by a next friend or an appointed guardian ad litem, the court may, on application by the next friend or the guardian ad litem and on a finding that the creation of a trust would be in the best interests of the minor or incapacitated person, enter a decree in the record directing the clerk to deliver any funds accruing to the minor or incapacitated person under the judgment to a trust company or a state or national bank having trust powers in this state.

Further, §142.005(g) of the Texas Property Code states:

Notwithstanding any other provision of this chapter, if the court finds that it would be in the best interests of the minor or incapacitated person for whom a trust is created under this section, the trust may contain provisions determined by the court to be necessary to establish a special needs trust as specified under 42 U.S.C. §1396p(d)(4)(A).

Note: Subsection (g) of the Property Code specifically states that trusts created under this section may contain any necessary provisions to establish a trust under 42 U.S.C. §1396p(d)(4)(A). This restriction in the subsection does not appear to give the court authority to create a pooled interest trust under 42 U.S.C.§1396p(d)(4)(C), therefore, no analysis for a pooled interest trust is provided here.

When to use a §§142 / 1396(A) SNT. Perhaps the most appropriate circumstances for using a §§142 / 1396(A) trust would be where the client is a physically disabled minor who does not have any mental incapacities, who is involved in a lawsuit where money damages are going to be awarded to them, or who has been involved in a lawsuit that has resulted in money damages being awarded to them, and who needs or is likely to need public benefits assistance to help pay for their support and/or medical costs. Under these circumstances, the option allowed by 42 U.S.C. §1396p(d)(4)(A) to have a court create the qualifying trust, would probably best suit the client's needs.

The Property Code places six prerequisites on the creation and use of a §142 Trust: (1) a pending "suit" is required; (2) the suit must involve a minor or an incapacitated person; (3) the minor must not have a legal guardian or the incapacitated person must be represented in the suit by a next friend or an appointed guardian ad litem; (4) the next friend or guardian ad item must apply for creation of the trust; (5) the court must find that creating the trust would be in the minor's or incapacitated person's best interest; and (6) a judgment must be entered. And subsection (g) allows the court to do whatever is necessary, and the trust to contain any provisions necessary, to meet the requirements of a qualifying 1396(A) trust.

1. Client Profile Number Five: §§142 / 1396p(d)(4)(A) Individual (Self-Settled) Supplemental Needs Trust

Amy is a thirteen year old girl who was seriously injured in a car accident last winter. Mrs. Holmes is Amy's mother and was driving the car when the accident occurred. Mrs. Holmes received some minor injuries in the accident but she has completely recovered from those injuries with no long term disabilities. Amy, however, was sitting in the backseat of the car and suffered lasting damage to her back and left leg as a result of the accident. The Holmes' car was hit from behind by a delivery truck for SeaWay Foods. Amy has already undergone four surgeries on her back and leg and it is expected that over the next five years as she continues to grow and mature she will require further surgeries and ongoing physical therapy. Amy will have a permanent and pronounced limp in her left leg. It is too soon to tell the extent of the permanent damage to Amy's back and spine, but all medical and physical evidence shows that Amy will be disabled for the rest of her life and that she will be disqualified from private insurance coverage due to her "pre-existing conditions."

Mrs. Holmes is a single mother and does not have health insurance coverage for herself or Amy. A lawsuit has been filed by Mrs. Holmes for herself individually and on Amy's behalf as "next friend" in district court in Travis County. At the time of the accident, SeaWay Foods had insurance with limited liability coverage which capped at $200,000 per occurrence. Mrs. Holmes' medical expenses resulting from the accident are approximately $4,350. Amy's existing medical bills exceed $235,000. SeaWay's insurance company is willing to settle the suit for policy limits and partition the award in any way accepted by the parties in exchange for a full release against all current and future claims by both parties. Because of the potential conflict of interest between Amy and her mother, the district court has appointed a guardian ad litem to represent Amy's best interests in the proceeding. Mrs. Holmes is willing to divert the entire damage award to her daughter and work to pay off her own medical bills over time by making monthly installment payments.

The medical treatments, surgeries, hospitalizations, doctor's visits, prescriptions, physical therapies, and living assistance skills needed for Amy's care are available through the Medicaid program for individuals who meet the income and asset restrictions of the program. As outlined above, Amy clearly meets the "disability" requirement of the program. However, if Amy receives the insurance proceeds, she cannot qualify financially for Medicaid, or at least she could not qualify until all of the money awarded to her was used to pay for her medical expenses. Amy would then be left with no financial resources to help her supplement her diminished earning capacities, or pay for any of the other types of assistance, physical or medical, that she may need throughout her life.

2. Analysis of Amy's §§142 / 1396(A) Individual Supplemental Needs Trust

It is clear from the facts above that Amy would qualify for and benefit from creating a §142 Trust with complying §1396p(d)(4)(A) provisions. Amy is under age 65; she is disabled according to the Social Security disability definition discussed above; she has a pending lawsuit filed; she has both a "next friend" and guardian ad litem acting for her in the lawsuit who can seek the creation of her trust by the court in which the suit is pending; and upon concluding the suit, a judgment will be entered for Amy. Further, under these circumstances, there is no need to appoint a guardian under the Probate Code for Amy.

Amy will be entitled to receive $200,000 in damages (minus any applicable fees and expenses). If Amy receives the settlement proceeds outright, she will not qualify financially for SSI or Medicaid benefits. Placing the award in a §142 trust without meeting the requirements of §1396p(d)(4)(A) will also mean that Amy would not qualify for governmental assistance because the trust assets would be counted as available resources to Amy.

Because Amy's award will be provided to her as compensation for her personal injuries and for the loss of some, if not all, of her earning ability the proceeds will be considered Amy's property. Therefore, by placing that property in trust, the trust will be considered self-settled.

Given these facts the best trust structure for Amy would be a §142 Trust with complying §1396(A) provisions.

Amy's trust can be created by the district court using its power under §142 of the Property Code. As was discussed above with regard to federal law requirements , qualifying §1396(A) trusts can be created for a disabled beneficiary by a court. Since Amy is involved in a pending lawsuit and it is not necessary for Amy to have a separate guardianship created for her, §142 of the Texas Property Code is clearly the statute that the court should use to create Amy's trust.

NOTE: SAMPLE FORMS FOR THE COURT PLEADINGS AND TRUST DOCUMENTS TO CREATE OR AMEND SECTION 142 AND 1396(A) SUPPLEMENTAL NEEDS TRUSTS ARE PROVIDED IN APPENDICES C THROUGH J.

X. THIRD PARTY, NONSELF-SETTLED (OR NON-GRANTOR) SUPPLEMENTAL NEEDS TRUST

As the following information from Mr. Farrell's paper shows, practioners have used nonself-settled, or non-grantor supplemental needs trusts for the past 50 years as tool for meeting the needs of disabled clients or family members. On pages 72 and 73 of his paper cited herein, Mr. Farrell states:

A. Nature and Purpose of Non-Grantor Supplemental Needs Trusts

This section discusses a class of public benefits-related trusts not affected by the OBRA 93 rules discussed above–Supplemental Needs Trusts (sometimes called "Special Needs Trusts") established by someone other than the client [the benefits recipient].

Such trusts may, for example, be established by parents or other relatives of disabled persons receiving SSI; by wills of community spouses of nursing home residents; or (by will) by recipients of gifts in the planning process. They have also in the past been established by defendants in personal injury cases (or their insurers), for SSI recipients; but while such trusts will not affect the right to the monetary benefits of SSI, they may preclude Medicaid eligibility if they do not comply with the rules discussed above for trusts established by the client. (HCFA takes the position that OBRA 93 applies even to Medicaid obtained through the cash assistance programs. State Medicaid Manual §3259.1, first paragraph. However, as of this writing, DHS has not developed a system for cutting off Medicaid for a client who is eligible for SSI but not Medicaid.)

Trusts established by someone other than the client need not have provisions for repaying Medicaid benefits to the State, nor are they affected by the age restrictions nor other provisions discussed above. Instead, they have their own requirements, which are found nowhere in the statutes or regulations but have been developed by 50 years of common law. (For a more complete discussion, see Clifton B. Kruse, Jr., Third Party and Self-created Trusts (1995); Palmer, Estate Planning for Public Welfare Recipients, 2 Probate & Property 43 (March/April 1988); Chamberlin, Estate Planning for Families With Disabled Children, Illinois Bar J. July 197, page 612.

The purpose of such trusts is to provide for needs of the beneficiary not met by public benefits programs. Accordingly, if the client receives Medicaid through SSI (or long term care Medicaid, in most states except Texas), distributions from them are highly restricted, as discussed below. The public policy supporting such trusts is to encourage private support for disabled persons eligible for public benefits.

B. Requirements for Non-Grantor Supplemental Needs Trusts

The following requirements have been created by the case law:

Source of corpus. As discussed above, someone other than the client [benefits recipient] must have contributed the corpus.

Restrictions on trustee discretion. Discretion of the trustee to utilize corpus and income for support and maintenance may not make the corpus an available resource [countable against the benefits recipient]. If the client receives Medicaid in conjunction with SSI, the trust should not contain "support" language and should either be totally discretionary, or should state clearly that trust assets are to be used to supplement, not supplant, governmental benefit programs. (Programs Operations Manual System (POMS) §01120.105, 01120.200; Speer's Family Law Service, 6th Ed. Section 49:48.) In Texas, the Long Term Care Medicaid program will not count the corpus of a non-grantor trust as a resource, even if the trust contains "support" requirements. Rather, all distributions of income or principal are treated as "income" for Medicaid purposes, except distributions for "medical or social purposes." (40 T.A.C. Section 15.415(d); Medicaid Eligibility Handbook §2313.2. The resource and income requirements of Medical Assistance Only benefits are required by federal statute to be the same, in "SSI states" such as Texas, as for the Supplemental Security Income program. Social Security Act §1902(a)(10)(ii)(V) [42 U.S.C.A. §1396a(a)(10)(A)(ii)(V)]. Therefore, the Texas treatment of trusts is more beneficial to clients than federal law requires, as the SSI program counts non-grantor trust assets as resources unless there is "special needs" language. However, the counting of all distributions as "income" appears inconsistent with SSI law, which does not count as income payments made directly to providers for goods and services other than food, clothing and shelter. It is possible, however, that the Texas rules can be harmonized with SSI law by interpreting the exception for "medical or social services" as allowing all the non-counted distributions that SSI law would allow. This appears to be an unresolved (and perhaps unconsidered) issue as far as DHS is concerned. For additional authority in support of applying SSI rules, see POMS §00835.310 and Trust Company of Oklahoma, 825 P.2d 1295 (Okla S. Ct. 1995). In most states, however, "support" language will be treated as making the trust corpus available.

Irrevocability. The trust must be irrevocable. (POMS §01120.200. Where the grantor is the sole beneficiary, Texas cases hold that even a trust that is irrevocable by its terms can be revoked. Seguin State Bank & Trust Co. v. Locke, 102 S.W.2d 1050 (Tex. Comm. App. 1937). This is not a problem in the types of trusts under discussion, because they are not funded by the grantor. Where the grantor does fund the trust (probably including even personal injury cases), Medicaid is now available only if one of the "exception" trusts discussed above is used. If the Medicaid is obtained through SSI, the SSI requirement of irrevocability applies; but it should be achievable simply by designating by name one or more remainder beneficiaries [to the trust assets], so the grantor be the "sole beneficiary" and the property will not be subject to disposition through the grantor's will.

When to use a nonself-settled SNT. Certainly if you get the opportunity to intercede and create a supplemental needs trust to benefit a disabled or incapacitated person before that person has actually received the property or assets that, if given to them, would cause them to be disqualified for benefits assistance, that is the best possible circumstance for the disabled beneficiary. As the above discussions illustrate, transferring assets into a "common law" SNT relieves many of the restrictions, perhaps most importantly the payback provision, applied to the statutory SNTs we have examined. Common law SNTs may be either inter-vivos or testamentary with both forms of the trusts working the same way to isolate the trust corpus from being counted as an available for the trust beneficiary.

1. Client Profile Number Six: Common Law, Nonself-Settled, Non-Grantor Supplemental Needs Trust

The facts supporting the use and creation of a common law SNT for Amy are the same in this client profile as in profile number five above except that, in this profile, Amy has been disabled by a degenerative bone disease she has had since she was three years old. Amy was never injured in a car accident and she has no property of her own. Amy's mother's financial circumstances and Amy's lack of health insurance coverage is the same as stated above. Amy's grandmother on her father's side has a close relationship with her granddaughter and her daughter-in-law but she is worried about Amy and her being able to receive the medical treatments she so clearly will need for the rest of her life. Since the time Amy was born, Amy's grandmother has taken great pleasure in taking Amy on trips to Disney Land and doing other "special" things for her granddaughter. Amy's grandmother has some money of her own and wants to give Amy approximately $195,000.00. Amy currently receives SSI and Medicaid benefits.

2. Amy's Common Law, Nonself-settled Supplemental Needs Trust Structure Analysis

It is clear from these facts that if Amy's grandmother has a property drafted, common law SNT created naming Amy as a beneficiary and then transfers the money she wants to give Amy into the trust, Amy can continue to be qualified for and receive the government assistance she currently gets, while at the same time the money from her grandmother can be used to add to the quality of Amy's medical care and her life.

Because Amy has not yet received the gift from her grandmother meaning that her trust will not be self-
settled, there is no need to involve guardians, parents, or courts in the creation or management of her trust. Amy's grandmother can serve as the trustee of her trust, and so long as she wishes to serve, she can make the decisions regarding trust distributions and how Amy should benefit from her trust.

NOTE: A SAMPLE FORM FOR A COMMON LAW, NONSELF-SETTLED TRUST CREATED BY A THIRD PARTY IS PROVIDED IN APPENDIX S.

XI. CONCLUSION

As has been illustrated by the information provided above and, hopefully, made more clear by the client profiles outlined here, it is very possible to use a special trust structure to benefit disabled or incapacitated individuals while at the same time, making or keeping the disabled beneficiary qualified for government assistance programs. While it may appear that the client profiles presented are "too good to be true" on how perfectly the facts fit with the requirements and provisions for using a special trusts, all of the profiles, with the exception of the pooled interest trust, are from the author's own client files and a special trust has been drafted and successfully used in each case to qualify or continue the client's receiving benefits assistance.

XI I.	Can be created if lawsuit is pending	Yes	Yes	Yes
XI II.	Can be created if lawsuit is not pending	No	Yes	Yes
XI V.	Can be created if a guardianship is pending	No (except possibly for incapacitated persons -- see p. 4)	Yes	Yes
XV .	Can be funded with litigation proceeds	Yes	Yes	Yes
XV I.	Can be funded with property other than litigation proceeds	No	Yes	Yes
XV II.	Can be requested by guardian ad litem or next friend	Yes	No	Yes
XV III.	Can be requested by guardian	No	Yes	Yes
XI X.	Can be requested by attorney ad litem	No	Yes	Yes
XX .	Can be requested by any interested person or created on court's own initiative	No	No	Yes
XX I.	Can exist while guardianship is in existence	Yes, if it was created when guardianship did not exist	Yes	n/a
XX II.	Can exist while guardianship of the estate is not in existence	Yes	Yes, but guardian of the person may be required	No
XX III.	Tex. Prop. Code § 142.007 definition of "incapacitated person" applies	Yes	No	No
XX IV.	Tex. Prob. Code Ann. § 601(13) definition of "incapacitated person" applies	No	Yes	Yes
XX V.	Physician's certificate regarding incapacity required	No	Yes	Yes
XX VI.	Incapacity must be proven by clear and convincing evidence at a hearing where an attorney ad litem represents the proposed ward/beneficiary	No	Yes	Yes
XX VI I.	Corporate trustee/guardian required	Yes	Yes	No
XX VI II.	Health, education, maintenance and support distribution standard mandatory	Yes, except for (d)(4)(A) trusts	Yes, except for (d)(4)(A) trusts	No
XX IX.	Trustee/guardian can be ordered not to make support distributions to minors if minor's parents have the ability to support minor	Probably no	Probably yes	Yes
XX X.	Principal distributions for health, education, maintenance and support authorized without further court order	Yes	Yes	No (see Tex. Prob. Code Ann. § 776)
XX XI.	Distributions permitted to person whom the ward/beneficiary is legally obligated to support	Probably not	Yes	Yes
XX XI I.	Spendthrift provision may protect the estate or trust from the creditors of the ward/beneficiary	Maybe	Maybe	No, but ward may not have the power to contract
XX XI II.	Trust-type investments (securities, etc.) permitted without prior court approval	Yes	Yes	No
XX XI V.	Investments limited to Tex. Prob. Code Ann. §855-approved investments (U. S. bonds, FDIC-insured accounts, etc.) without prior court approval	No	No	Yes
XX XV .	Trustee/guardian may make tax-motivated gifts	No	Yes, with the help of a guardian and with court approval	Yes, with court approval
XX XV I.	Must terminate when minor ward/beneficiary attains age 18 (if minority is his or her only incapacity)	No	No	Yes
XX XV II.	Terminates when minor ward/beneficiary attains age 18 unless extended by court order (not to exceed age 25)	No	Yes	No
XX XV III.	Terminates when minor ward/beneficiary attains age 25 unless shortened by the terms of the trust	Yes	No	No
XX XI X.	Terminating distributions may be made to someone other than the ward/beneficiary or the ward/beneficiary's estate	No, except for (d)(4)(A) trusts	Yes	No
XL .	Trustee compensation based on Tex. Prob. Code Ann. § 665 (5% of income plus 5% of disbursements)	No	Yes	Yes
XL I.	Annual application and approval of trustee compensation required	No	Yes	Yes
XL II.	Filing and approval of annual account required	No	Yes	Yes
XL III.	Filing and approval of final account required	No	Yes	Yes
XL IV.	Guardianship-style accountings required	No	Yes	Yes
XL V.	Bank-trust-department-style accountings permitted	Yes	No	No
XL VI.	Trustee/guardian has powers of trustee under the Texas Trust Code	Probably	Yes	No
XL VI I.	Texas Trust Code applies (to the extent not in conflict)	Maybe (see p. 9)	Yes	No
XL VI II.	Court creating trust/guardianship may modify or terminate trust/guardianship	Yes	Yes	Yes
XL IX.	Court creating trust/guardianship may hold trustee/guardian liable for breach of fiduciary duty	District court and statutory probate court: Yes; county court: Maybe (see p. 10)	Yes	Yes
L.	Yes	Yes
LI.	Court creating trust/guardianship may hear trustee/guardian's motion for instructions	District court and statutory probate court: Yes; county court: Maybe (see p. 10)	Yes	Yes
LI I.	Can be used as a (d)(4)(A) Medicaid "supplemental needs" trust	Yes	Yes	No
LI II.	Can be used as a (d)(4)(B) "Miller Trust"	Probably No	Yes	No
LI V.	Can be used as a (d)(4)(C) nonprofit pooled trust	Probably No	Probably Yes	No

GUARDIANSHIP MANAGEMENT TRUSTS

Reflecting Changes Through the Regular Session, 75th Legislature (1997)

Changes made by HB 1314 (effective 9/1/97) are shown as follows: additions/]

Sec. 867. CREATION OF MANAGEMENT TRUST. On application by the guardian of a ward or by a ward's attorney ad litem at any time after the date of the attorney's appointment under Section 646 of this code, the court in which the guardianship proceeding is pending may enter an order that creates for the ward's benefit a trust for the management of guardianship funds if the court finds that the creation of the trust is in the ward's best interests. The order shall direct the guardian or another person to deliver all or part of the assets of the guardianship to a trust company or a state or national bank that has trust powers in this state. The order shall include terms, conditions, and limitations placed on the trust. The court shall maintain the trust under the same cause number as the guardianship proceeding.

Sec. 868. TERMS OF MANAGEMENT TRUST.

(a) Except as provided by Subsection (d) of this section, a [] trust created under Section 867 of this code must provide that:

(1) the ward is the sole beneficiary of the trust;

(2) the trustee may disburse an amount of the trust's principal or income as the trustee determines is necessary to expend for the health, education, support, or maintenance of the ward;

(3) the income of the trust that the trustee does not disburse under Subdivision (2) of this subsection must be added to the principal of the trust;

(4) the trustee serves without giving a bond; and

(5) the trustee, on annual application to the court and subject to the court's approval, is entitled to receive reasonable compensation for services that the trustee provided to the ward as the ward's trustee that is:

(A) to be paid from the trust's income, principal, or both; and

(B) determined in the same manner as compensation of a guardian of an estate under Section 665 of this code.

(b) The trust may provide that a trustee make a distribution, payment, use, or application of trust funds for the health, education, support, or maintenance of the ward or of another person whom the ward is legally obligated to support, as necessary and without the intervention of a guardian or other representative of the ward, to:

(1) the ward's guardian; [ ]

(2) a person who has physical custody of the ward [ ] or [] another person whom the ward is legally obligated to support; or

(3) a person providing a good or service to the ward or another person whom the ward is legally obligated to support.

[ ]

(d) When creating or modifying a trust, the court may omit or modify terms required by Subsection (a)(1) or (2) of this section only if the court determines that the omission or modification:

(1) is necessary and appropriate for the ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the ward; and

(2) is in the ward's best interests.

(e) The court may include additional provisions in a trust created or modified under this section if the court determines an addition does not conflict with Subsection (a) and, if appropriate, Subsection (d) of this section.

Sec. 868A. DISCHARGE OF GUARDIAN OF ESTATE AND CONTINUATION OF TRUST. On or at any time after the creation of a trust under this subpart, the court may discharge the guardian of the ward's estate only if a guardian of the ward's person remains and the court determines that the discharge is in the ward's best interests.

Sec. 869. TRUST AMENDMENT, MODIFICATION, OR REVOCATION.

(a) The court may amend, modify, or revoke the trust at any time before the date of the trust's termination.

(b) The ward or guardian of the ward's estate may not revoke the trust.

Sec. 869A. SUCCESSOR TRUSTEE. The court may appoint a corporate fiduciary as successor trustee if the trustee resigns, becomes ineligible, or is removed.

Sec. 869B. APPLICABILITY OF TEXAS TRUST CODE.

(a) A trust created under Section 867 of this code is subject to Subtitle B, Title 9, Property Code.

(b) To the extent of a conflict between Subtitle B, Title 9, Property Code, and a provision of this subpart or of the trust, the provision of the subpart or trust controls.

Sec. 869C. JURISDICTION OVER TRUST MATTERS. A court that creates a trust under Section 867 of this code has the same jurisdiction to hear matters relating to the trust as the court has with respect to the guardianship and other matters covered by this chapter.

Sec. 870. TERMINATION OF TRUST.

(a) If the ward is a minor, the trust terminates:

(1) on the death of the ward or the ward's 18th birthday, whichever is earlier; or

(2) on the date provided by court order which may not be later than the ward's 25th birthday.

(b) If the ward is an incapacitated person other than a minor, the trust terminates on the date the court determines that continuing the trust [ ] is no longer in the ward's best interests [ ] or on the death of the ward.

Sec. 871. ANNUAL ACCOUNTING.

(a) The trustee shall prepare and file with the court an annual accounting of transactions in the trust in the same manner and form that is required of a guardian under this chapter.

(b) The trustee shall provide a copy of the annual account to the guardian of the ward's estate or person.

(c) The annual account is subject to court review and approval in the same manner that is required of an annual account prepared by a guardian under this chapter.

Sec. 872. LIABILITY. The guardian of the person or of the estate of the ward or the surety on the bond of the guardian is not liable for an act or omission of the trustee.

Sec. 873. DISTRIBUTION OF TRUST PROPERTY. Unless otherwise provided by the court, the trustee shall:

(1) prepare a final account in the same form and manner that is required of a guardian under Section 749 of this code; and

(2) on court approval, distribute the principal or any undistributed income of the trust:

(A) to the ward when the trust terminates on its own terms;

(B) to the successor trustee on appointment of a successor trustee; or

(C) to the representative of the deceased ward's estate on the ward's death.

TRUSTS FOR MINORS AND INCAPACITATED PERSONS

Reflecting Changes Through the Regular Session, 75th Legislature (1997)

Changes made by SB 912 (effective 9/1/97) are shown as follows: additions/]

Sec. 142.005. TRUST FOR PROPERTY

(a) In a suit in which a minor who has no legal guardian or an incapacitated person is represented by a next friend or an appointed guardian ad litem, the court may, on application by the next friend or the guardian ad litem and on a finding that the creation of a trust would be in the best interests of the minor or incapacitated person, enter a decree in the record directing the clerk to deliver any funds accruing to the minor or incapacitated person under the judgment to a trust company or a state or national bank having trust powers in this state.

(b) The decree shall provide for the creation of a trust for the management of the funds for the benefit of the minor or incapacitated person and for terms, conditions, and limitations of the trust, as determined by the court, that are not in conflict with the following mandatory provisions:

(1) the minor or incapacitated person is the sole beneficiary of the trust;

(2) the trustee may disburse amounts of the trust's principal, income, or both as the trustee in his sole discretion determines to be reasonably necessary for the health, education, support, or maintenance of the beneficiary;

(3) the income of the trust not disbursed under Subdivision (2) is added to the principal of the trust;

(4) if the beneficiary is a minor, the trust terminates on the death of the beneficiary, on the beneficiary's attaining an age stated in the trust, or on the 25th birthday of the beneficiary, whichever occurs first, or if the beneficiary is an incapacitated person, the trust terminates on the death of the beneficiary or when the beneficiary regains capacity;

(5) the trustee serves without bond; and

(6) the trustee receives reasonable compensation paid from trust's income, principal, or both on application to and approval of the court.

(c) A trust established under this section may provide that:

(1) distributions of the trust principal before the termination of the trust may be made from time to time as the beneficiary attains designated ages and at designated percentages of the principal; and

(2) distributions, payments, uses, and applications of all trust funds may be made to the legal or natural guardian of the beneficiary or to the person having custody of the beneficiary or may be made directly to or expended for the benefit, support, or maintenance of the beneficiary without the intervention of any legal guardian or other legal representative of the beneficiary.

(d) A trust created under this section may be amended, modified, or revoked by the court at any time before its termination, but is not subject to revocation by the beneficiary or a guardian of the beneficiary's estate. If the trust is revoked by the court before the beneficiary is 18 years old, the court may provide for the management of the trust principal and any undistributed income as authorized by this chapter. If the trust is revoked by the court after the beneficiary is 18 years old, the trust principal and any undistributed income shall be delivered to the beneficiary after the payment of all proper and necessary expenses.

(e) On the termination of the trust under its terms or on the death of the beneficiary, the trust principal and any undistributed income shall be paid to the beneficiary or to the representative of the estate of the deceased beneficiary.

(f) A trust established under this section prevails over any other law concerning minors, incapacitated persons, or their property, and the trust continues in force and effect until terminated or revoked, notwithstanding the appointment of a guardian of the estate of the minor or incapacitated person, or the attainment of the age of majority by the minor.

(g) Notwithstanding any other provision of this chapter, if the court finds that it would be in the best interests of the minor or incapacitated person for whom a trust is created under this section, the trust may contain provisions determined by the court to be necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

___________ ("Guardian Ad Litem"), guardian ad litem for _____________ ("Plaintiff"), a [minor] [incapacitated person under Tex. Prop. Code §142.007], files this Application to Create Trust Under Section 142.005 of the Texas Property Code (the "Application"). In support of this Application, Guardian Ad Litem would show the Court as follows:

1.	Plaintiff is entitled to judgment in the above entitled and numbered cause. [Describe other parties, nature of judgment, etc., if desired].

2.	Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible decisions concerning Plaintiff's person].

3.	Plaintiff has no legal guardian.

4.	Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff.

5. It would be in the best interests of the Ward for the trust to be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

6.	The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

5.[7.]	________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.

6.[8.]	Section 142.005 (b) (6) of the Texas Property Code provides that the trustee of a trust created pursuant to Tex. Prop. Code § 142.005 shall receive reasonable compensation paid from the trust's income, principal, or both on application to and approval of the Court. Guardian Ad Litem asks the Court to approve the fees and compensation that are payable to Trustee under the terms of the trust instrument approved by the Court.

7.[9.]	Upon entry of judgment and creation of the trust, the clerk of this court and/or all parties to this proceeding holding funds which are payable to or for the benefit of Plaintiff should be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust. [Modify as needed to fit settlement/judgment terms.]

8.[10.]	Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as guardian ad litem for Plaintiff.

PRAYER

Guardian Ad Litem prays that the Court will make the findings and determinations described above, that the Court will create a trust for the benefit of Plaintiff under Tex. Prop. Code § 142.005 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to this proceeding holding funds which are payable to or for the benefit of Plaintiff shall be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust; that the Court shall order that the fees and compensation authorized to be paid to Trustee by the terms of the trust instrument are reasonable; that the Court will order that the Trustee is authorized to pay itself such fees and compensation and reimburse itself for expenses as provided in the trust instrument without further application to or order from this Court; that the Court will award Guardian Ad Litem a reasonable fee, to be paid by Trustee upon funding of the trust (if not sooner paid); that the Court will discharge Guardian Ad Litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.

Respectfully submitted,

GUARDIAN AD LITEM

Note that Tex. Prop. Code §142.005(b)(6) provides that the trust must provide that "the trustee receives reasonable compensation paid from the trust's income, principal or both Rather than relying on the guardian ad litem's application for creation of the trust to approve trustee compensation, trustees can assure that they meet the statutory requirements by filing their own application seeking approval of compensation. The trustee's application can be approved as part of the order creating the trustee (see optional language ([italicized and bracketed]) in Appendix F) or by separate order (see Appendix G).

____________ ("Trustee"), a [national banking association with trust powers][a state banking association with trust powers][a Texas trust company], which has agreed to serve as trustee of a trust benefitting _______________ ("Plaintiff") which this court is creating pursuant to Section 142.005 of the Texas Property Code, makes this application to the court for approval of its compensation as trustee pursuant to Tex. Prop. Code § 142.005 (b) (6). In support of this application, Trustee would show the Court as follows:

Section 142.005 (b) (6) of the Texas Property Code provides that the trustee of a trust created pursuant to Tex. Prop. Code § 142.005 shall receive reasonable compensation paid from the trust's income, principal, or both on application to and approval of the Court. Trustee makes this application in accordance therewith and asks the Court to approve the fees and compensation that are payable to Trustee under the terms of the trust instrument approved by the Court.

PRAYER

Trustee prays that the Court will approve this application and approve the fees and compensation to be paid to Trustee under the terms of the trust instrument approved by the Court.

Respectfully submitted,

ATTORNEYS FOR TRUSTEE

On this day the Court considered the Application to Create Trust Under Section 142.005 of the Texas Property Code (the "Application") filed in this proceeding by ____________ ("Guardian Ad Litem"), guardian ad litem for _____________ ("Plaintiff"), a [minor] [incapacitated person under Tex. Prop. Code §142.007]. Based upon the Application, the pleadings of the parties in this proceeding, the evidence presented and the argument of counsel, the Court finds that:

1.	Plaintiff is entitled to judgment in the above entitled and numbered cause.

2.	Plaintiff is [a minor] [a person who is impaired because of mental illness, mental deficiency, physical illness or disability, advanced age, chronic use of drugs, chronic intoxication, or other cause to the extent that Plaintiff lacks sufficient understanding or capacity to make or communicate responsible decisions concerning Plaintiff's person].

3.	Plaintiff has no legal guardian.

4.	Creation of a trust pursuant to Tex. Prop. Code §142.005 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff.

5. It would be in the best interests of Plaintiff for the trust to be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

6.	The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

5.[7.]	______________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the trust for Plaintiff's benefit.

6.[8.]	[Trustee has filed an application with this court for approval of its fees and compensation. The court finds that the Trustee's application should be granted.] The fees and compensation that are payable to Trustee under the terms of the trust instrument are reasonable and should be approved by the Court.

7.[9.]	That the clerk of this Court and/or all parties to this proceeding holding funds which are payable to or for the benefit of Plaintiff should be ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust. [Modify as needed to fit settlement/judgment terms.]

7.[10.]	Upon entry of judgment and creation of the trust, Guardian Ad Litem should be paid a reasonable fee for services rendered, should be reimbursed for expenses, and should be discharged as guardian ad litem for Plaintiff.

IT IS, THEREFORE, ORDERED that a trust for the benefit of Plaintiff under Tex. Prop. Code § 142.005 is hereby created with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that Trustee shall be trustee of such trust; [that the trust shall be a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the clerk of this Court and/or any party to this proceeding holding funds which are payable to or for the benefit of Plaintiff are ordered to pay and deliver such funds to Trustee as part of the trust estate of such trust; that the fees and compensation authorized to be paid to Trustee by the terms of the trust instrument are reasonable and are approved by the Court, and the Trustee is authorized to pay itself such fees and compensation and reimburse itself for expenses as provided in the trust instrument without further application to or order from this Court; that Guardian Ad Litem is awarded a fee of $_______, to be paid by Trustee upon funding of the trust (if not sooner paid); and that Guardian Ad Litem is hereby discharged, will be paid a reasonable fee, be reimbursed for costs, and be discharged.

Signed this ____ day of _______________, 199__.

_____________________________________

Judge Presiding

Note: Use this Order only if the trustee's application for compensation was not approved in the order creating the trust (see Appendix F and note to Appendix E)

On this day the Court considered the Trustee's Application for Approval of Compensation filed by ________________ ("Trustee"), trustee of the trust benefitting _____________ ("Plaintiff") being created by this Court pursuant to Tex. Prop. Code § 142.005. The Court finds that the compensation to be paid to Trustee under the trust instrument being approved by the Court is reasonable.

IT IS, THEREFORE, ORDERED that application filed by Trustee is approved and that the Court approves the payment of fees and compensation to Trustee as provided in the trust instrument being approved by the Court.

SIGNED this ____ day of ______________________, _____.

__________________________________

Judge Presiding

__________________ ("Trustee"), trustee of the court-created trust ("the Trust") described below for the benefit of _________________ ("Beneficiary"), [a minor] [an incapacitated person], pursuant to Section 142.005 of the Texas Property Code, files this Application to Modify Trust Regarding 1997 Legislation (the "Application"). In support of this Application, Trustee would show the Court as follows:

1.	By order dated ____________, 19___ (the "Creation Order"), this Court created a trust (the "Trust") for the benefit of Beneficiary pursuant to Section 142.005 of the Texas Property Code. Trustee is trustee of the Trust. The Trust is governed by the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein.

2. At the time of creation of the Trust, this Court determined that it was in the best interests of Beneficiary for the Trust to qualify as a "special needs trust" under 42 U.S.C. Section 1396p(d)(4)(A), and the Court ordered that the trust instrument governing the Trust should contain provisions which the Court determined were necessary to qualify the Trust as a "special needs trust" under 42 U.S.C. Section 1396p(d)(4)(A).

3.	1997, the Texas Legislature enacted SB 912 (Acts, 75th Legislature, Regular Session, Chapter 128), which added subparagraph (g) to Section 142.004 of the Texas Property Code, which reads as follows:

(g) Notwithstanding any other provision of this chapter, if the court finds that it would be in the best interests of the minor or incapacitated person for whom a trust is created under this section, the trust may contain provisions determined by the court to be necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

4.	While the Court clearly found when it created the Trust that it would be in the best interests of Beneficiary to be a special needs trust and that the provisions of the trust instrument governing the Trust were necessary for the Trust to be a special needs trust, Trustee is unclear whether or not subparagraph (g) applies to the Trust since the Trust was created prior to September 1, 1997, which is the effective date of SB 912.

5.	So that there is no confusion or question regarding the terms and conditions of the Trust and the applicability of Tex. Prop. Code § 142.005(g) to the Trust, Trustee asks the Court to modify the Trust so that Tex. Prop. Code § 142.005(g), as added by SB 912, clearly applies to the Trust.

PRAYER

Trustee prays that this Application will be granted; that the Court will modify the Trust so that Tex. Prop. Code § 142.005(g), as added by SB 912, applies to the Trust; that the Court reaffirm its findings that it is in the best interests of Beneficiary for the Trust to be a special needs trust as specified in 42 U.S.C. Section 1396p(d)(4)(A), and that the provisions of the trust instrument governing the Trust are necessary for the Trust to be a special needs trust as specified in 42 U.S.C. Section 1396p(d)(4)(A); and that the Court award such other and further relief to which Trustee may be entitled.

Respectfully submitted,

ATTORNEY FOR TRUSTEE

On this day the Court considered the Application to Modify Trust Regarding 1997 Legislation (the "Application") filed in this proceeding by _____________ ("Trustee"). Based upon the Application, the evidence presented and the argument of counsel, the Court finds that:

1.	By order dated _______________, 19___ (the "Creation Order"), this Court created a trust (the "Trust") for the benefit of _______________ ("Beneficiary") pursuant to Section 142.005 of the Texas Property Code.

2.	Trustee is trustee of the Trust.

3.	The Trust is governed by the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein.

4.	At the time of creation of the Trust, this Court determined that it was in the best interests of Beneficiary for the Trust to qualify as a "special needs trust" under 42 U.S.C. Section 1396p(d)(4)(A), and the Court ordered that the trust instrument governing the Trust should contain provisions which the Court determined were necessary to qualify the Trust as a "special needs trust" under 42 U.S.C. Section 1396p(d)(4)(A).

5.	In 1997, the Texas Legislature enacted SB 912 (Acts, 75th Legislature, Regular Session, Chapter 128), which added subparagraph (g) to Section 142.004 of the Texas Property Code, which reads as follows:

(g) Notwithstanding any other provision of this chapter, if the court finds that it would be in the best interests of the minor or incapacitated person for whom a trust is created under this section, the trust may contain provisions determined by the court to be necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

6.	The Trust should be modified so that there is no confusion or question that Tex. Prop. Code § 142.005(g), as added by SB 912, clearly applies to the Trust.

IT IS, THEREFORE, ORDERED that the Trust is hereby modified so that Tex. Prop. Code § 142.005(g), as added by SB 912, applies to the Trust; and that the Court reaffirm its findings that it is in the best interests of Beneficiary for the Trust to be a special needs trust as specified in 42 U.S.C. Section 1396p(d)(4)(A), and that the provisions of the trust instrument governing the Trust as attached hereto as Exhibit "A" and incorporated herein are necessary for the Trust to be a special needs trust as specified in 42 U.S.C. Section 1396p(d)(4)(A).

Signed this ____ day of _________________, 199__.

________________________________________

Judge Presiding

This declaration of trust creates a trust (the "Trust") for the benefit of ____________________ (the "Beneficiary"), [a minor][an incapacitated person (within the meaning of Tex. Prop. Code §142.007)] with __________________ (the "Trustee") as trustee.

a.	This Trust is created by the order of the District Court of _____________ County, Texas, ____ Judicial District (the "Court") in Cause No. _________, styled ___________________________, as Guardian Ad Litem for ________________________, [a Minor][an Incapacitated Person], v. ________________________________, pursuant to Tex. Prop. Code § 142.005.

b.
The initial trust estate of the Trust shall be the property described on Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the Trust from time to time and added to the trust estate.

c.	The Beneficiary shall be the sole beneficiary of the Trust. Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal, income, or both as the Trustee in its sole discretion determines to be reasonably necessary for the health, education, support, or maintenance of the Beneficiary. Distributions, payments, uses, and applications of all trust funds may be made to the legal or natural guardian of the Beneficiary or to the person having custody of the Beneficiary or may be made directly to or expended for the benefit, support, or maintenance of the Beneficiary without the intervention of any legal guardian or other legal representative of the Beneficiary. The income of the Trust that the Trustee does not disburse or under this section must be added to the principal of the Trust.

d.	The Trust will terminate on the earlier of: (a) the death of the Beneficiary; or (b) [on the Beneficiary's twenty-fifth (25th) birthday][when the Beneficiary regains capacity (within the meaning of Tex. Prop. Code §142.007]. The Trust also may be terminated in whole or in part at any time by order of the Court.

e.	Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary's estate.

c.	The following provisions shall govern distributions from the Trust during the term of this Trust:

1.	This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is intended to be construed and administered as a "supplemental needs" trust under 42 U. S. C. §1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust.

2.	During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the Beneficiary's supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal. Distributions, payments, uses, and applications of all trust funds may be made to the legal or natural guardian of the Beneficiary or to the person having custody of the Beneficiary or may be expended directly for the benefit of the Beneficiary without the intervention of any legal guardian or other legal representative of the Beneficiary.

3.	As used in this instrument, "supplemental needs" refers to the requisites, as allowed for in 42 U. S. C. §1396p(d)(4)(A), for maintaining the Beneficiary's health, safety, and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for any property, services, benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from any insurance carrier required to cover the Beneficiary. Further, the Trustee is prohibited from expending any of the trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate with the Beneficiary's conservator, guardian, or legal representative to seek support and maintenance for the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that are available through any governmental or private resource.

4.	The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash for purposes of Medicaid qualification.

d.	The Trust will terminate on the death of the Beneficiary. The Trust also may be terminated in whole or in part at any time by order of the Court.

e.	Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust as follows:

1.	First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C. §1396p(d)(4)(A). The Trustee shall reimburse those states where the Beneficiary has received Medical Assistance payments from the state, based upon the state's proportionate share of the total amount of Medicaid benefits paid by all of the states on the Beneficiary's behalf, the smallest amount (if any) as applicable law then requires the Trust to pay. The Trustee's duty to reimburse the state upon termination shall apply to the extent there are remaining assets in this trust and shall apply irrespective of any other provision of this instrument. The Trustee shall reimburse the state only for those benefits provided to the Beneficiary which are subject to such reimbursement claim.

2.	After the satisfaction of these obligations, the Trustee shall distribute the remaining property, if any, to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary's estate.

f.	The Trustee is entitled to reasonable compensation paid from the Trust's income, principal, or both on application to and approval of the Court. Unless otherwise ordered by the Court, the fees and other charges described on the Trustee's then-current fee schedule are hereby approved by the Court as reasonable compensation to the Trustee, and the Trustee is entitled to pay itself such fees and other charges without further application to or approval of the Court. In addition, the Trustee may be reimbursed from the trust estate for expenses it reasonably incurs in connection with the Trust.

g.	The Trustee shall have all of the powers of trustees under the Texas Trust Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with Tex. Prop. Code § 142.005 or with the terms of this instrument.

h.	The Trustee shall serve without giving a bond.

i.	In the event of the corporate reorganization, merger or acquisition of the Trustee, the resulting successor organization shall automatically become the successor trustee. The Trustee may resign with the approval of the Court and may be removed by order of the Court. Upon the resignation or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.

j.	To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.

k.	The Court may amend, modify, or revoke the Trust at any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the Beneficiary's estate may revoke the Trust.

l.	This Trust shall be effective upon the last to occur of (A) the entry of an order creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.

TRUSTEE'S ACCEPTANCE:

By:_______________________

Name:_____________________

Title:______________________

Often the need for an 867 Trust is apparent before a guardianship is in place. In these cases, it makes more sense to proceed directly with creation of an 867 Trust without the appointment and qualification of a guardian. However, prior to 1997 only a guardian could apply for creation of an 867 Trust. Since one does not become a guardian until one is appointed and qualifies, appointment of a guardian was a prerequisite to creation of an 867 Trust. In 1997 Section 867 was amended to permit a ward's attorney ad litem "at any time after the date of the attorney's appointment" to apply for creation of an 867 Trust and to permit the court to order third parties to transfer funds directly to the trustee of an 867 Trust without the need for the property to pass through the hands of a guardian of the estate. Thus, now an applicant can try to convince an attorney ad litem to apply for creation of an 867 Trust before a guardian is appointed, obviating the need for a guardianship. This application anticipates that an attorney ad litem will be appointed who can be convinced to file a related application (see Appendix L) for creation of an 867 Trust.

______________ ("Applicant") files this application for the appointment of a guardian and/or for creation of a guardianship management trust for the benefit of ____________ (the "Proposed Ward"), [a minor][an incapacitated person], pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:

1.	The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward's name, sex, date of birth and address are as follows:_______________.

2.	Applicant's name, address and relationship to the Proposed Ward are as follows: __________.

3.	Applicant is seeking the creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867. Only if required by the Court for creation of a guardianship management trust, or, alternatively, only if the Court refuses to create a guardianship management trust, Applicant seeks the appointment of a guardian of the estate and person of the Proposed Ward.

4.	The nature and degree of the Proposed Ward's incapacity, the specific areas of protection and assistance requested, and the limitation of rights requested to be included in the Court's order are as follows:___________________.

5.	The facts requiring the guardianship management trust to be created and the interest of Applicant in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the Proposed Ward's estate. Creation of a guardianship management trust, rather than a guardianship of the estate, is in the best interests of the Proposed Ward. Applicant believes that creation of a guardianship management trust is in the Proposed Ward's best interests. [Add more facts as desired or appropriate.]

6.	No guardianship exists for the Proposed Ward, to the knowledge of Applicant.

7. The name and address of any person or institution having the care and custody of the Proposed Ward is as follows:_______________.

8.	The approximate value and description of the Proposed Ward's property, including any compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the knowledge of Applicant, is as follows:_______________.

9.	The requested term of the guardianship management trust is as stated in the proposed form of the trust attached hereto as Exhibit "A" and incorporated herein.

10.	The name and address of any person whom the applicant knows to hold a power of attorney signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.

11.	[If the Proposed Ward is a minor, include the names of the parents and next of kin of the Proposed Ward and a statement as to whether either or both of the parents are deceased.]

12.	[If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved, the nature of the proceeding, and the final disposition, if any, of the proceeding.]

13.	[If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of Applicant's knowledge, of the Proposed Ward's spouse, siblings, and children, or, if there is no spouse, sibling, or child, the names and addresses of the Proposed Ward's next of kin.]

14.	This Court has venue over this proceeding because the Proposed Ward is a resident of and is domiciled in ______________ County, Texas.

15.	Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867 Trust.]

16.	It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

17.	The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Proposed Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Proposed Ward.

18.	_________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed Ward's benefit.

19.	The Court should direct that, upon creation of the guardianship management trust, each person holding property of the Proposed Ward [including, but not limited to, ____________________ (specifically identify third parties holding the Proposed Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.

20.	No guardianship of the Proposed Ward's person or estate is necessary, and the Court should order than none be created. However, if the Court refuses to create a guardianship management trust for the Ward, or, alternatively, if the Court requires the appointment of a guardian of the estate and/or guardian of the person of the Proposed Ward as a condition to the creation of the guardianship management trust, Applicant asks that ________________ (the "Proposed Guardian") be appointed the guardian of the estate and/or guardian of the person of the Proposed Ward. The Proposed Guardian is qualified and is not disqualified to serve as guardian of the person and/or estate of the Proposed Ward.

PRAYER

Applicant prays that, after proper notice and service of citation, the Court will appoint an attorney ad litem for the Proposed Ward; that the Court will make the findings and determinations described above and necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that the Court will find that no guardianship of the estate and/or person of the Proposed Ward is necessary, or, alternatively, that the Court will appoint the Proposed Guardian as guardian of the person and/or estate of the Proposed Ward; and that the Court will grant such other and further relief to which Plaintiff may be entitled.

Respectfully submitted,

ATTORNEY FOR APPLICANT

This form may be used by an attorney ad litem to apply for creation of an 867 Trust before a guardian is appointed. It may be used in conjunction with Appendix K, in cases where the applicant for the guardianship also wants an 867 Trust to be created, or it may be used by itself in cases where the applicant did not seek creation of an 867 Trust.

________________________ ("Applicant"), attorney ad litem for _____________________ (the "Proposed Ward"), [a minor][an incapacitated person], files this application for the creation of a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:

1.	The Proposed Ward is [a minor][an incapacitated person]. The Proposed Ward's name, sex, date of birth and address are as follows:_________________.

2.	Applicant is the court-appointed attorney ad litem for the Proposed Ward. Applicant's name and address are as follows:_________________.

3.	Applicant seeks neither a guardianship of the person or estate of the Proposed Ward; rather, Applicant seeks the creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867.

4.	The nature and degree of the Proposed Ward's incapacity, the specific areas of protection and assistance requested, and the limitation of rights requested to be included in the Court's order are as follows:_____________.

5.	The facts requiring the guardianship management trust to be created and the interest of Applicant in such creation are as follows: The Proposed Ward needs the assistance of a trustee in managing the Proposed Ward's estate. Creation of a guardianship management trust, rather than a guardianship of the estate, is in the best interests of the Proposed Ward. Applicant is the court-appointed attorney ad litem for the Proposed Ward and believes that creation of a guardianship management trust is in the Proposed Ward's best interests. [Add more facts as desired or appropriate.]

6.	No guardianship exists for the Proposed Ward, to the knowledge of Applicant. _____________ has filed an application for appointment of a guardian, and that application is pending in this Court under this cause number. [If accurate: _________________ consents to the creation of a guardianship management trust in lieu of a guardianship of the estate pursuant to Tex. Prob. Code Ann. §867.]

7. The name and address of any person or institution having the care and custody of the Proposed Ward is as follows:________________.

8.	The approximate value and description of the Proposed Ward's property, including any compensation, pension, insurance, or allowance to which the Proposed Ward may be entitled, to the knowledge of Applicant, is as follows:_____________.

9.	The requested term of the guardianship management trust is as stated in the proposed form of the trust attached hereto as Exhibit "A" and incorporated herein.

10.	The name and address of any person whom the applicant knows to hold a power of attorney signed by the Proposed Ward and a description of the type of power of attorney is as follows:___________.

11.	[If the Proposed Ward is a minor, include the names of the parents and next of kin of the Proposed Ward and a statement as to whether either or both of the parents are deceased.]

12.	[If the Proposed Ward is a minor, include a statement as to whether the minor was the subject of a legal or conservatorship proceeding within the preceding two-year period and, if so, the court involved, the nature of the proceeding, and the final disposition, if any, of the proceeding.]

13.	[If the Proposed Ward is 60 years of age or older, include the names and addresses, to the best of Applicant's knowledge, of the Proposed Ward's spouse, siblings, and children, or, if there is no spouse, sibling, or child, the names and addresses of the Proposed Ward's next of kin.]

14.	This Court has venue over this proceeding because the Proposed Ward is a resident of and is domiciled in ______________ County, Texas.

15.	Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward. [If desired, state the reasons for creation of the 867 Trust.]

16.	It would be in the best interests of the Proposed Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

17.	The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Proposed Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Proposed Ward.

18.	_______________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Proposed Ward's benefit.

19.	The Court should direct that, upon creation of the guardianship management trust, each person holding property of the Proposed Ward [including, but not limited to, _____________ (specifically identify third parties holding the Proposed Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.

20.	No guardianship of the Proposed Ward's estate is necessary.

21.	[If desired: No guardianship of the Proposed Ward's person is necessary.]

22.	Upon entry of the Court's order creating the guardianship management trust, Applicant, attorney ad litem for the Proposed Ward, should be paid a reasonable fee from the trust and should be discharged.

PRAYER

Applicant prays that the Court will make the findings and determinations described above and necessary for the creation of a guardianship management trust for the benefit of the Proposed Ward; that the Court will create a guardianship management trust for the benefit of the Proposed Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order each person holding property of the Proposed Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that the Court will award Applicant a reasonable fee as attorney ad litem, to be paid by Trustee upon funding of the trust (if not sooner paid); that the Court will discharge Applicant as attorney ad litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.

Respectfully submitted,

ATTORNEY AD LITEM

This form may be used in cases where the Court agrees that an 867 Trust should be created and where the Court sees no need for a guardianship of the estate (see notes to Appendix K and Appendix L).

On this day the Court considered the Application for Guardianship And/Or Creation of Guardianship Management Trust filed by __________________ ("Applicant") and the Application for Creation of Guardianship Management Trust filed by ___________________ ("Attorney Ad Litem"), attorney ad litem, regarding _______________________ ("the Ward"), [a minor][an incapacitated person]. [The Ward attended the hearing on the above applications.][The Court finds that the Ward's attendance at the hearing on the above applications is not necessary.] After considering the above applications, the evidence presented, and the arguments of counsel, the Court finds by clear and convincing evidence that the Ward is an incapacitated person; that it is in the best interest of the Ward for the court to create a guardianship management trust for the Ward pursuant to Tex. Prob. Code Ann. §867; that the rights of the Ward or the Ward's property will be protected by the creation of a guardianship management trust; and that, if a guardianship management trust is created for the Ward, no guardianship of the estate and/or person of the Ward is necessary. The Court further finds by a preponderance of the evidence that the Court has venue of this matter because the Ward resides in this county; [that the Ward is a minor][that the Ward is totally without capacity as provided by the Texas Probate Code to care for himself or herself and to manage the Ward's property][that the Ward lacks the capacity to do some, but not all, of the tasks necessary to care for himself or herself or to manage the Ward's property]; that the Ward's incapacity is evidenced by recurring acts or occurrences within the preceding six-month period and not by isolated instances of negligence or bad judgment; that creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of the Proposed Ward; [that it would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A); that the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;] that ____________________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward's benefit; that the Court should direct that, upon creation of the guardianship management trust, each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; and that upon entry of the Court's order creating the guardianship management trust, Attorney Ad Litem, should be paid the amount stated below from the trust as a reasonable fee for serving in such capacity and should be discharged.

IT IS, THEREFORE, ORDERED that:

1.	The Ward is an incapacitated person;

2.	A guardianship management trust for the benefit of the Ward is established pursuant to Tex. Prob. Code Ann. §867 with the terms and provisions set forth on Exhibit "A" attached hereto and incorporated herein;

3.	No guardianship of the estate and/or person of the Ward is necessary;

4.	[The Ward is a minor][The Ward is totally without capacity as provided by the Texas Probate Code to care for himself or herself and to manage the Ward's property][The Ward lacks the capacity to do the following actions: ______________________________________________];

5.	[It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;]

6.	____________________________ ("Trustee"), a trust company or a state or national bank having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered to administer such trust in accordance with applicable law and in accordance with the terms and provisions of the trust instrument attached hereto as Exhibit "A;"

7.	Upon creation of the guardianship management trust, each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; and

8.	Attorney Ad Litem is awarded a fee in the amount of $_________________ from the trust as a reasonable fee for serving in such capacity and is hereby discharged.

SIGNED this ____ day of ______________, _____.

_________________________________________

Judge Presiding

This form may be used by the guardian or the attorney ad litem to apply for creation of an 867 Trust where a guardianship of the estate already exists.

________________________ ("Applicant"), [guardian of the estate of][attorney ad litem for] _____________________ (the "Ward"), [a minor][an incapacitated person], files this application for the creation of a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code Ann. §867. In support of this application, Applicant would show the Court as follows:

1.	The Ward is [a minor][an incapacitated person]. A guardianship of the estate of the Ward exists in this Court.

2.	Creation of a guardianship management trust pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein would be in the best interests of Plaintiff. [If desired, state the reasons for creation of the 867 Trust.]

3.	It would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

4.	The terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward.

3.[5.]	__________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward's benefit.

4.[6.]	The Court should direct that, upon creation of the guardianship management trust, the guardian of the estate of the Ward and any other person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust.

5.[7.]	Upon creation of the guardianship management trust and upon the transfer of all assets in the possession or control of the guardian of the estate of the Ward to Trustee, the Court should discharge the guardian of the ward's estate pursuant to Tex. Prob. Code Ann. §868A.

6.[8.]	[If desired or appropriate:]Upon entry of the Court's order creating the guardianship management trust, __________________, attorney ad litem for the Ward, should be paid a reasonable fee from the guardianship estate or the trust and should be discharged.

PRAYER

Applicant prays that the Court will make the findings and determinations described above, that the Court will create a guardianship management trust for the benefit of the Ward pursuant to Tex. Prob. Code Ann. §867 with those terms and provisions set forth in Exhibit "A" attached hereto and incorporated herein; that the Court will name Trustee as trustee of such trust; [that the trust shall be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A);] that the Court will order the guardian of the estate of the Ward and any other person holding property of the Ward to deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that upon creation of the guardianship management trust and upon the transfer of all assets in the possession or control of the guardian of the estate of the Ward to Trustee, the guardian of the Ward's estate shall be discharged pursuant to Tex. Prob. Code Ann. §868A; [that the Court will award _______________, attorney ad litem, a reasonable fee, to be paid by the guardian of the estate of the Ward or by Trustee upon funding of the trust (if not sooner paid)]; that the Court will discharge said attorney ad litem; and that the Court will grant such other and further relief to which Plaintiff may be entitled.

Respectfully submitted,

ATTORNEY FOR APPLICANT

On this day the Court considered the Application for Creation of Guardianship Management Trust filed by ___________________, [attorney ad litem for ___________________ ("the Ward")][guardian of the estate of ______________________ ("the Ward")], [a minor][an incapacitated person]. After considering the above applications, the evidence presented, and the arguments of counsel, the Court finds that the Ward is an incapacitated person; that it is in the best interest of the Ward for the Court to create a guardianship management trust for the Ward pursuant to Tex. Prob. Code Ann. §867 containing the terms and provisions of the trust instrument attached hereto as Exhibit "A" and incorporated herein; [that it would be in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A); that the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;] that ____________________________ ("Trustee") is a trust company or a state or national bank having trust powers in Texas and is willing to serve as trustee of the guardianship management trust for the Ward's benefit; that the Court should direct that, upon creation of the guardianship management trust, the guardian of the estate of the Ward and each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust; that, upon creation of the guardianship management trust and the transfer of all assets in the possession and control of the guardian of the estate of the Ward to the Trustee, no guardianship of the estate of the Ward is necessary and _____________ should be discharged as guardian of the estate; and that upon entry of the Court's order creating the guardianship management trust, _________________, attorney ad litem, should be paid the amount stated below from the trust as a reasonable fee for serving in such capacity and should be discharged.

IT IS, THEREFORE, ORDERED that:

1.	A guardianship management trust for the benefit of the Ward is established pursuant to Tex. Prob. Code Ann. §867 with the terms and provisions set forth on Exhibit "A" attached hereto and incorporated herein;

2.	[It is in the best interests of the Ward for the trust to be a supplemental needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A), and the terms of the trust instrument attached hereto as Exhibit "A" and incorporated herein are necessary and appropriate for the Ward to be eligible to receive public benefits or assistance under a state or federal program that is not otherwise available to the Ward;]

3.	____________________________ ("Trustee"), a trust company or a state or national bank having trust powers in Texas, is appointed as trustee of the guardianship management trust and is ordered to administer such trust in accordance with applicable law and in accordance with the terms and provisions of the trust instrument attached hereto as Exhibit "A;"

4.	The guardian of the estate of the Ward and each person holding property of the Ward [including, but not limited to, ____________________________ (specifically identify third parties holding the Ward's funds)] shall deliver all of such assets to Trustee, to be held by Trustee as the trust estate of the trust;

5.	Upon creation of the guardianship management trust and the transfer of all assets in the possession and control of the guardian of the estate of the Ward to the Trustee, no guardianship of the estate of the Ward is necessary and _____________ should be discharged as guardian of the estate[; and

6.	______________________, attorney ad litem, is awarded a fee in the amount of $_________________ from the trust as a reasonable fee for serving in such capacity and is hereby discharged.]

SIGNED this ____ day of ______________, _____.

_________________________________________

Judge Presiding

This declaration of trust creates a management trust (the "Trust") for the benefit of ____________________ (the "Beneficiary") with __________________ (the "Trustee") as trustee.

13.	This Trust is created by the order of the Probate Court of _____________ County, Texas (the "Court") in Cause No. _________, Guardianship of the Estate of the Beneficiary, pursuant to Sections 867 -- 873 of the Texas Probate Code.

14.
The initial trust estate of the Trust shall be the property described on Schedule "A" attached hereto. Additional property acceptable to the Trustee may be transferred to the Trust from time to time and added to the trust estate.

15.	The Beneficiary shall be the sole beneficiary of the Trust. Prior to termination of the Trust, the Trustee may disburse that amount of the Trust's principal or income as the Trustee determines is necessary to expend for the health, education, support, or maintenance of the Beneficiary. In addition, the Trustee may make a distribution, payment, use, or application of trust funds for the health, education, support, or maintenance of the Beneficiary or of another person whom the Beneficiary is legally obligated to support, as necessary and without the intervention of a guardian or other representative of the Beneficiary, to: (A) the Beneficiary's guardian; (B) a person who has physical custody of the Beneficiary or another person whom the Beneficiary is legally obligated to support; or (C) a person providing a good or service to the Beneficiary or another person whom the Beneficiary is legally obligated to support. The income of the Trust that the Trustee does not disburse under this section must be added to the principal of the Trust.

16.	The Trust will terminate on the earlier of: (a) the death of the Beneficiary; or (b) [on the Beneficiary's eighteenth (18th) birthday, unless the Court orders that the trust shall terminate on a date later than the Beneficiary's eighteenth (18th) birthday, which date may not be later than the Beneficiary's twenty-fifth (25th) birthday][on the date the Court determines that continuing the trust is no longer in the Beneficiary's best interests]. The Trust also may be terminated in whole or in part at any time by order of the Court.

17.	Upon termination of the Trust, the trustee shall prepare and file the final account required by Tex. Prob. Code Ann. § 873 and, upon approval of the Court and unless otherwise provided by the Court, shall distribute the principal and any undistributed income of the Trust to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary's estate.

3.	The following provisions shall govern distributions from the Trust during the term of this Trust:

A.	This Trust is created pursuant to 42 U. S. C. §1396p(d)(4)(A). It is intended to be construed and administered as a "supplemental needs" trust under 42 U. S. C. §1396p(d)(4)(A). Without limiting the foregoing, neither the corpus of the Trust nor distributions from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust.

B.	During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the Beneficiary's supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal. The Trustee may apply such trust funds for the benefit of the Beneficiary, as necessary and without the intervention of a guardian or other representative of the Beneficiary, to: (A) the Beneficiary's guardian; (B) a person who has physical custody of the Beneficiary; or (C) a person providing a good or service to the Beneficiary.

C.	As used in this instrument, "supplemental needs" refers to the requisites, as allowed for in 42 U. S. C. §1396p(d)(4)(A), for maintaining the Beneficiary's health, safety, and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering the Beneficiary. The Trustee is prohibited from expending any of the trust principal or income for any property, services, benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from any insurance carrier required to cover the Beneficiary. Further, the Trustee is prohibited from expending any of the trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate with the Beneficiary's conservator, guardian, or legal representative to seek support and maintenance for the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and from any private sources. To the extent required by 42 U. S. C. §1396p(d)(4)(A) and other applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that are available through any governmental or private resource.

D.	The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash for purposes of Medicaid qualification.

4.	The Trust will terminate on the death of the Beneficiary. The Trust also may be terminated in whole or in part at any time by order of the Court.

5.	Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust as follows:

A.	First, the Trustee shall pay all amounts required to be reimbursed pursuant to 42 U. S. C. §1396p(d)(4)(A). The Trustee shall reimburse those states where the Beneficiary has received Medical Assistance payments from the state, based upon the state's proportionate share of the total amount of Medicaid benefits paid by all of the states on the Beneficiary's behalf, the smallest amount (if any) as applicable law then requires the Trust to pay. The Trustee's duty to reimburse the state upon termination shall apply to the extent there are remaining assets in this trust and shall apply irrespective of any other provision of this instrument. The Trustee shall reimburse the state only for those benefits provided to the Beneficiary which are subject to such reimbursement claim.

B.	After the satisfaction of these obligations, the Trustee shall distribute the remaining property, if any, to the Beneficiary, outright and free of trust, or, if the Beneficiary is then deceased, to the representative of the deceased Beneficiary's estate.

18.	The Trustee shall prepare and file with the court an annual accounting of transactions in the Trust in the same manner and form that is required of a guardian of the estate under the Texas Probate Code. The Trustee shall provide a copy of the annual account to the Guardian of the Beneficiary's Estate and Person. The annual account is subject to review and approval by the Court in the same manner that is required of an annual account prepared by a guardian of the estate under the Texas Probate Code.

19.	The Trustee, on annual application to the Court and subject to the Court's approval, is entitled to receive reasonable compensation for services that the Trustee provided to the Beneficiary as the Beneficiary's Trustee that is (A) to be paid from the Trust's income, principal, or both and (B) determined in the same manner as compensation of a guardian of the estate under Section 665 of the Texas Probate Code; provided, however, that the Trustee shall not be entitled to compensation based on distributions to the Guardian of the Estate of the Beneficiary for purposes of making gifts pursuant to Section 865 of the Texas Probate Code. The Trustee may be reimbursed from the trust estate for expenses it reasonably incurs with the approval of the Court.

20.	The Trustee shall have all of the powers of trustees under the Texas Trust Code. The Trustee may invest the trust estate in investments permitted under the Texas Trust Code without further order of the Court and is not required to invest the trust estate in investments permitted by Section 855 of the Texas Probate Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with Tex. Prob. Code Ann. §§ 867-873 or with the terms of this instrument.

21.	The Trustee shall serve without giving a bond. Neither the Guardian of the Estate of the Beneficiary nor the surety on the Guardian's bond (if any) shall be liable for an act or omission of the Trustee.

22.	In the event of the corporate reorganization, merger or acquisition of the Trustee, the resulting successor organization shall automatically become the successor trustee. The Trustee may resign with the approval of the Court and may be removed by order of the Court. Upon the resignation or removal of the Trustee, the Court shall appoint a successor trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.

23.	To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.

24.	The Court may amend, modify, or revoke the Trust at any time before the date of the Trust's termination. Neither the Beneficiary nor the guardian of the Beneficiary's estate may revoke the Trust.

25.	This Trust shall be effective upon the last to occur of (A) the entry of an order creating the Trust by the Court, (B) the execution of this Declaration of Trust by the Trustee indicating its acceptance of the Trust; and (C) the receipt by the Trustee of the initial trust estate.

TRUSTEE'S ACCEPTANCE:

By:_______________________

Name:_____________________

Title:______________________

This is not a court-created trust, nor does it meet the requirements of 42 U. S. C. §1396p(d)(4)(A). Rather, this is a form of trust which may be used by a parent or other relative as a means of transferring property from the parent or relative for the benefit of a person receiving governmental assistance without disqualifying that person from receiving such assistance. The most significant distinction between this trust and a (d)(4)(A) trust is that this trust contains no provision for reimbursing the state upon the death of the beneficiary, since reimbursement is not required for a trust holding a third party's funds (rather than the beneficiary's funds).

This trust agreement is made by and between ____________________ ("Settlor") as settlor and __________________ ("Trustee") as trustee in order to create a trust (the "Trust") for the primary benefit of _____________ ("Beneficiary").

26.
Settlor transfers to Trustee the property described on Schedule "A" attached hereto as the initial trust estate of the Trust. The Trustee accepts such property. Additional property acceptable to the Trustee may be transferred to the Trust from time to time by anyone and added to the trust estate.

[2.	This trust is irrevocable.][2. This trust may be revoked or amended in whole or in part by Settlor during Settlor's lifetime. After Settlor's death, this Trust shall become irrevocable.]

3.	The following provisions shall govern distributions from the Trust during the term of this Trust:

A.	This Trust is intended to be construed and administered as a "supplemental needs" trust. Without limiting the foregoing, neither the corpus of the Trust nor distributions from the Trust shall ever cause the Beneficiary to be disqualified to receive those public benefits or assistance under a state or federal program to which the Beneficiary then may be entitled but for the existence of this Trust or but for the distributions from this Trust.

B.	During the term of this Trust, the Trustee shall apply for the benefit of the Beneficiary those amounts of the principal and/or income of the Trust for the satisfaction of the Beneficiary's supplemental needs (defined below), as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem appropriate, subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal.

C.	As used in this instrument, "supplemental needs" refers to the requisites for maintaining the Beneficiary's health, safety, and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering the Beneficiary.	The Trustee is prohibited from expending any of the trust principal or income for any property, services, benefits, or medical care which are being received by, or which are otherwise available to, the Beneficiary from any governmental source or from any insurance carrier required to cover the Beneficiary. Further, the Trustee is prohibited from expending any of the trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify the Beneficiary for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any deductible amounts for the Beneficiary on any insurance policies covering the Beneficiary so long as that payment does not disqualify the Beneficiary from receipt of benefits. The Trustee shall cooperate with the Beneficiary's conservator, guardian, or legal representative to seek support and maintenance for the Beneficiary from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and from any private sources. The Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of the Beneficiary that are available through any governmental or private resource.

D.	The Trustee shall pay any income tax liability of the Beneficiary which results from income received by the Trust but reported on the income tax return of the Beneficiary. The funds used to pay this income tax liability shall be paid directly to the appropriate taxing authority and shall not be available to the Beneficiary. The Beneficiary shall not have any right to or interest in any of these funds paid by the Trustee. Further, these funds are not a resource of the Beneficiary and shall not be treated as a distribution of cash for purposes of Medicaid qualification.

4.	Notwithstanding anything to the contrary in this instrument, the Trustee, in its sole discretion, may make any distribution required or permitted to be made under this instrument in any of the following ways (regardless of whether or not the Beneficiary is a minor or is incapacitated): (a) To the Beneficiary directly; (b) To the guardian of the Beneficiary's person or estate; (c) By reimbursing the person who is actually taking care of the Beneficiary, even though the person is not the legal guardian, for expenditures made by the person for the benefit of the Beneficiary; or (d) By paying for a good or service directly to the provider of that good or service.

5.	The Trust will terminate on the death of the Beneficiary.

6.	Upon termination of the Trust, the trustee shall distribute the principal and any undistributed income of the Trust to the Beneficiary's descendants, per stirpes, and if the Beneficiary has no descendants who are then living, to Settlor's descendants, per stirpes, and if none of such persons is then living, to Settlor's heirs at law.

7.	The Trustee shall be entitled to reasonable compensation, which compensation shall not exceed that customarily charged by corporate fiduciaries in ____________, Texas. In addition, the Trustee may be reimbursed from the trust estate for expenses it reasonably incurs.

8.	The Trustee shall have all of the powers of trustees under the Texas Trust Code. The terms and provisions of the Texas Trust Code shall apply to this Trust, to the extent they are not in conflict with the terms of this instrument.

9.	The Trustee shall serve without giving a bond.

10.	If the Trustee resigns, ________________ shall become successor Trustee. Each successor trustee shall have all of the rights, powers and duties of the Trustee.

11.	To the extent permitted by law, the interest of the Beneficiary shall be held subject to a spendthrift trust as provided in Section 112.035 of the Texas Property Code.

Signed this ____ day of _____________, ____.

___________________________________

Settlor

___________________________________

Trustee

Appendix R

This trust agreement is made by NAME OF PARENT, as Grantor (hereinafter referred to as "Grantor") and NAME OF TRUSTEE as Trustee. Grantor is the natural parent of NAME OF DISABLED INDIVIDUAL.

The Trust established under this Agreement shall be known as THE NAME OF DISABLED INDIVIDUAL BENEFITS AND SUPPLEMENTAL NEEDS TRUST. It is established pursuant to 42 U.S.C.A §1396p(d)(4)(A) (hereinafter "the Statute"), as amended effective August 10, 1993.

Grantor hereby appoints NAME OF TRUSTEE as Trustee of this trust.

Grantor hereby grants and assigns to NAME OF TRUSTEE (hereinafter referred to as "Trustee") the property listed on the attached Schedule "A" which is incorporated herein by reference, as the initial corpus of the of the Trust. This property, together with any additions acceptable to the Trustee and in keeping with the requirements of the Statute, plus any interest, income, and other accruals received on this corpus, shall constitute the Trust Estate.

During his/her lifetime, the sole beneficiary of the Trust, who is referred to in this document as Beneficiary, shall be NAME OF DISABLED INDIVIDUAL, who presently resides at: ADDRESS. Subject to the provisions of Article Four below, the Trust shall continue until NAME OF DISABLED INDIVIDUAL death. On the death of NAME OF DISABLED INDIVIDUAL, the Trust shall be distributed according to the provisions of ARTICLE FOUR below.

The Trustee shall pay or apply for the benefit of NAME OF DISABLED INDIVIDUAL during her lifetime, those amounts from the principal or income, or both, of the Trust for the satisfaction of NAME OF DISABLED INDIVIDUAL'S supplemental needs, as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem reasonable or necessary subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal.

As used in this instrument, "supplemental needs" refers to the requisites, as allowed for in the Statute, for maintaining NAME OF DISABLED INDIVIDUAL'S health, safety, and welfare when the Trustee determines, in its discretion, that such needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering NAME OF DISABLED INDIVIDUAL.	The Trustee is prohibited from expending any of the trust principal or income for any property, services, benefits, or medical care which are being received by, or which are otherwise available to, NAME OF DISABLED INDIVIDUAL from any governmental source or from any insurance carrier required to cover NAME OF DISABLED INDIVIDUAL. Further, the Trustee is prohibited from expending any of the trust principal or income for any such property, services, benefits, or medical care if that restriction is necessary in order to qualify NAME OF DISABLED INDIVIDUAL for such governmental or insurance carrier benefits because an application for such property, services, benefits, or medical care has been filed with an applicable governmental agency or insurance carrier on the Beneficiary's behalf. The Trustee may pay any deductible amounts for NAME OF DISABLED INDIVIDUAL on any insurance policies covering her.

The Trustee should cooperate with NAME OF DISABLED INDIVIDUAL'S conservator, guardian, or legal representative to seek support and maintenance for her from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), Supplemental Income Program (SIP) of Texas, the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional similar or successor programs, and from any private sources. To the extent required by the Statute and other applicable laws and regulations regarding trusts of this type, the Trustee may supplement, but shall not supplant, services, benefits, and medical care received or requested by or on behalf of NAME OF DISABLED INDIVIDUAL that are available through any governmental or private resource.

Payments of principal and income need not be made equally to NAME OF DISABLED INDIVIDUAL or for her/his benefit but may be made in unequal amounts, according to her supplemental needs as determined by the Trustee in the Trustee's discretion.

Unless sooner terminated by exhaustion of corpus, or by court order, or due to the Trustee's determination that continuation of this trust would not be feasible considering the size of the trust and the cost and time to maintain the trust, or that continuing the trust would not be beneficial for NAME OF DISABLED INDIVIDUAL, or otherwise, this trust shall terminate upon the death of NAME OF DISABLED INDIVIDUAL. At that time, any remaining assets in this Trust shall be distributed as follows:

1.	The Trustee shall first reimburse those states where NAME OF DISABLED INDIVIDUAL has received Medical Assistance payments from the state, based upon the state's proportionate share of the total amount of Medicaid benefits paid by all of the states on NAME OF DISABLED INDIVIDUAL'S behalf, the smallest amount (if any) as applicable law then requires the Trust to pay. The Trustee's duty to reimburse the State upon termination shall apply to the extent there are remaining assets in this trust and shall apply irrespective of any other provision of this agreement.

Since NAME OF DISABLED INDIVIDUAL is currently a resident of the State of Texas, for this purpose the TEXAS DEPARTMENT OF HUMAN SERVICES, or other successor or applicable state agency administering the State of Texas's medical assistance program, and/or any other state where NAME OF DISABLED INDIVIDUAL may hereafter receive such medical assistance benefits, shall have a vested remainder interest in this Trust if it is conclusively determined that NAME OF DISABLED INDIVIDUAL has received such benefits from the state for which a governmental claim for benefit reimbursement against trusts of this type is then allowed. The Trust shall reimburse only those benefits provided to NAME OF DISABLED INDIVIDUAL during her/his lifetime which are subject to such reimbursement claim.

After the satisfaction of these obligations, the Trustee is authorized to pay all estate, inheritance or other similar taxes which may be imposed upon NAME OF DISABLED INDIVIDUAL'S estate, together with any expenses of her/his last illness, funeral and burial costs, enforceable debts, and reasonable administration expenses.

2.	If any Trust assets remain after satisfaction of the provisions above, the residue of this Trust shall be distributed to NAME OF DISABLED INDIVIDUAL'S children who survive her/him. If NAME OF DISABLED INDIVIDUAL has no children who survive her/him, then the residue of the trust shall be distributed to CONTINGENT BENEFICIARY if s/he survives NAME OF DISABLED INDIVIDUAL if she does not survive him/her, per stirpes to the descendants of CONTINGENT BENEFICIARY who survive NAME OF DISABLED INDIVIDUAL, or if there are no such persons then living, to those persons who would be entitled to NAME OF DISABLED INDIVIDUAL'S estate under the statute of descent and distribution of decedents who have died intestate in the residence state of NAME OF DISABLED INDIVIDUAL at the time of her/his death; provided, this balance shall not be liable to creditor's of NAME OF DISABLED INDIVIDUAL except to the extent required by law.

This is a Discretionary Non-Support Spendthrift Trust. None of the principal or income of the Trust Estate or any interest therein, shall be anticipated, assigned, encumbered, or be subject to any creditors' claims or to any legal process. Furthermore, because this Trust is to be conserved and maintained for the supplemental needs of NAME OF DISABLED INDIVIDUAL, who may be medically disabled or impaired throughout her life, during her lifetime no part of the Trust Estate shall be construed as part of NAME OF DISABLED INDIVIDUAL'S estate, or be subject to the claims of voluntary or involuntary creditors of NAME OF DISABLED INDIVIDUAL. No part of the Trust Estate shall be liable to the Beneficiary's creditors during the Beneficiary's life or after the Beneficiary's death except as otherwise allowed by law.

Subject to the provisions of Article Three above, if NAME OF DISABLED INDIVIDUAL has applied for or is receiving such assistance benefits, no part of the Trust shall be used to supplant or replace public assistance benefits of any county, state, or federal agency, that has a legal responsibility to serve persons with disabilities that are the same or similar to NAME OF DISABLED INDIVIDUAL'S. No part of the Trust shall be used to supplant or replace benefits due from any insurance carrier under any insurance policy covering NAME OF DISABLED INDIVIDUAL.

If the Trustee is required to release any of the Trust Estate to the Beneficiary to pay for benefits that public assistance programs are authorized to provide if not for the existence of the Trust, or if the Trustee is required to petition a court or any other administrative agency, for the release of the Trust principal, interest, or income for such purpose, the Trustee is authorized and directed to deny such request, and is authorized, in the Trustee's sole discretion, to take whatever administrative or judicial steps the Trustee deems necessary to continue public assistance program eligibility for NAME OF DISABLED INDIVIDUAL. In the event a health care provider, city, county, state, federal, quasistatal, or other charitable or governmental like authority institutes any legal action to obtain assets from the Trust, the Trustee shall have the power to terminate the Trust and the remaining assets shall be distributed as herein provided. (A "quasistatal" is a corporation funded primarily by governmental funds and governed by a board primarily appointed by government authorities like the Public Broadcasting System, the Legal Services Corporation, the American Red Cross, and public housing authorities.)

All reasonable expenses in establishing, maintaining, administering, and defending this Trust, including but not limited to reasonable attorney fees, accounting fees, Trustee fees, and costs shall be a proper charge to the Trust.

The validity of this Trust shall be determined by the laws, including valid regulations, of the United States and the State of Texas.

It is recognized that the Trustee is not licensed nor skilled in the field of social sciences. The Trustee may seek the counsel and assistance of any guardian or conservator of the Beneficiary, or others, including any state and local agencies that are established to assist the disabled. The Trustee should use available resources to assist in identifying programs that may be of social, financial, developmental, or other assistance to the Beneficiary. The Trustee shall not in any event, however, be liable to the Beneficiary, or the remainder beneficiaries of the Trust, or to any other party, for acts undertaken as Trustee in good faith. The Trustee shall not be liable for failure to identify all programs or resources that may be available to the Beneficiary because of the Beneficiary's disabilities, nor shall the Trustee be liable for failing to apply for any public benefits that may be available.

The situs of this Trust is Texas and the Trustee may exercise all the powers awarded to Trustees in the Texas Trust Code, as amended, subject to the limitations created in this Trust Agreement. In addition, the Trustee may invest in non-income producing assets where such investment is appropriate in the Trustee's opinion.

Any Trustee acting under the terms of this instrument shall be entitled to reasonable compensation for Trustee services as allowed by law. The Trustee shall also be entitled to reimbursement of reasonable costs expended by the Trustee.

No power enumerated in this instrument shall be construed to enable any person to purchase, exchange, or otherwise deal with or dispose of the principal or income of this trust for less than adequate and full consideration in money or money's worth.

The Trustee shall provide accountings to the Beneficiary or her conservator, guardian, or legal representative when requested. These accountings shall set forth all receipts and distributions made during the reporting period and assets held in Trust at the end of the reporting period.

The Trustee of this Trust may amend this instrument so that it conforms with any laws, including valid regulations, that are approved by any governing body or agency relating to 42 U.S.C.A. §1396p(d)(4)(A) or related statutes, Supplemental Security Income benefits, Medicaid benefits, or any similar or successor public benefits programs.

The Original Trustee of this Trust is NAME OF TRUSTEE. If NAME OF TRUSTEE fails or ceases to serve as Trustee at any time, NAME OF CONTINGENT TRUSTEE shall serve as successor Trustee. If both TRUSTEE and CONTINGENT TRUSTEE fail or cease to serve as Trustee at any time, SECOND CONTINGENT TRUSTEE shall serve as successor Trustee, provided that she has at least reached age eighteen at the time the time she would be required to so serve. Notwithstanding the foregoing order of appointment, if necessary for any reason, a court of competent jurisdiction may appoint a Trustee. A Trustee may resign by giving thirty days prior written notice to NAME OF DISABLED INDIVIDUAL, her conservator, guardian, or legal representative. Such resignation shall become effective upon the expiration of thirty days. Any successor Trustee shall have the authority vested in the Trustee by original appointment.

This Trust is irrevocable. NAME OF DISABLED INDIVIDUAL shall have no right or power, whether alone or in conjunction with others, in whatever capacity, to alter, amend, revoke or terminate this Trust, or any of the terms of this Trust Agreement, in whole or in part, or to designate the persons who shall possess or enjoy the Trust Estate, except as is set out specifically in this instrument.

Except as may otherwise be required by court order, the Trustee shall not be required to give bond or other security for the faithful performance of the Trustee's duties under this Trust. No Trustee shall be liable for any loss of Trust assets, except for any loss caused by the Trustee's bad faith or gross negligence.

IN WITNESS WHEREOF, NAME OF PARENT, as Grantor, and NAME OF TRUSTEE, as Trustee, have signed and approved this document the _______ day of ___________, 199____.

______________________

Trustee for NAME OF DISABLED INDIVIDUAL

___________________________

___________________________

NAME OF PARENT, Grantor

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

____________________________________________________

This trust agreement is made by NAME OF GRANTOR, individually, and NAME OF GRANTOR, individually, as Grantors (hereinafter "Grantor"), and NAME OF TRUSTEE as Trustee who, with all successors in trust, are called the "Trustee."

ARTICLE ONE

NAME OF THE TRUST

The Trust established under this Agreement shall be known as THE NAME OF DISABLED PERSON SUPPLEMENTAL NEEDS TRUST.

ARTICLE TWO

TRUST ESTATE, TRUSTEE AND BENEFICIARY

Grantor hereby appoints NAME OF TRUSTEE as Trustee of this trust. Grantor hereby grants and assigns to NAME OF TRUSTEE (hereinafter referred to as "Trustee") the property listed on the attached Schedule "A" as the initial corpus of the Trust. This property, together with any additions acceptable to the Trustee made by any person, entity, trust (whether inter vivos or testamentary), or by deed or other transfer, for the benefit of NAME OF DISABLED PERSON, plus any interest, income and other accruals received on this corpus, shall constitute the Trust Estate. It is Grantor's expectation that additional contributions will be made to the Trust at a later date.

The primary beneficiary of the Trust shall be NAME OF DISABLED PERSON. The term "Trust Beneficiary" or "beneficiary" will also mean any and all persons, organizations, trusts, and entities who may have or may acquire a beneficial interest in this trust upon the death of NAME OF DISABLED PERSON, whether vested or contingent in nature, resulting from the exercise of a power of appointment by a Trust Beneficiary or otherwise.

ARTICLE THREE

DISPOSITION OF PRINCIPAL AND INCOME

The Trustee shall pay or apply for the benefit of NAME OF DISABLED PERSON, during her/his lifetime, such amounts from the principal or income, or both, of the Trust as is necessary for the satisfaction of NAME OF DISABLED PERSON'S supplemental needs, as the Trustee, in the Trustee's sole and absolute discretion, may from time to time deem reasonable or necessary subject to the strict limitations set out in this instrument. Any income of the trust not distributed shall be added to the principal. No one, including NAME OF DISABLED PERSON or any creditor of NAME OF DISABLED PERSON, will ever have the right to compel a distribution of trust income or trust principal. Nor will the Trustee ever be liable, individually or in a fiduciary capacity, for the Trustee's exercise of discretion or for making, or not making, distributions of income and principal from the Trust.

Grantor understands that there may be issues of self-dealing or conflict of interest incident to the service of a Trustee who is also a remainder beneficiary under this Trust. Grantor specifically indemnifies a Trustee from any claim, loss, liability, damage, or cost (including the cost to defend a claim) resulting from the Trustee's service to the Trust due to allegations of self-dealing or conflict of interest.

As used in this instrument, "supplemental needs" refers to the requisites for maintaining NAME OF DISABLED PERSON'S health, education, safety and welfare when the Trustee determines, in the Trustee's discretion, that those needs are not being provided for by any public or private agency, including any state, the United States, or any insurance carrier with insurance policies covering NAME OF DISABLED PERSON.

The Trustee is specifically prohibited from expending any of the trust principal or income for any property, services, benefits or medical care otherwise available to NAME OF DISABLED PERSON from any governmental source or from any insurance carrier required to cover NAME OF DISABLED PERSON if an application for such property, services, benefits or medical care has been filed, or if NAME OF DISABLED PERSON is receiving such assistance. The Trustee may pay any deductible amounts for NAME OF DISABLED PERSON on any insurance policies covering her. The Trustee should cooperate with NAME OF DISABLED PERSON'S conservator, guardian, or legal representative to seek support and maintenance for her from all available resources, including but not limited to, the Supplemental Social Security Income Program (SSI), the Old Age Survivor and Disability Insurance Program (OASDI), the Medicaid Program, and any additional, similar or successor programs and from any private support sources. The Trustee may supplement, but may not supplant, services, benefits and medical care requested by or provided on behalf of NAME OF DISABLED PERSON that are available through any governmental resource.

Payments of principal and income need not be made equally to or for NAME OF DISABLED PERSON'S benefit but may be made in unequal amounts, according to NAME OF DISABLED PERSON'S supplemental needs as determined by the Trustee in the Trustee's discretion.

Grantor has not included specific standards, guidelines, or instructions as to distributions of income and principal to or for NAME OF DISABLED PERSON'S benefit, and particularly such standards as they are specified by the Internal Revenue Code. This is in keeping with Grantor's intent that this Trust be a wholly discretionary trust and that neither the trust fund nor its income will ever be a financial resource which is available to NAME OF DISABLED PERSON or over which NAME OF DISABLED PERSON has any power, including the right to withdraw income or principal or the right to compel a distribution of the income or principal of the Trust.

ARTICLE FOUR

TRUST TERMINATION: PAYMENT AND

DISTRIBUTIONS ON DEATH OF NAME OF DISABLED PERSON

Unless sooner terminated by exhaustion of corpus, this trust shall terminate upon the death of NAME OF DISABLED PERSON. Upon termination of this trust, any and all principal and accumulated income remaining shall pass and vest as follows:

(1)	If NAME OF GRANTOR and NAME OF GRANTOR survive NAME OF DISABLED PERSON, the trust's principal and accumulated income shall pass and vest in equal shares, 1/2 each, to NAME OF GRANTOR and NAME OF GRANTOR. If either NAME OF GRANTOR or NAME OF GRANTOR do not survive NAME OF DISABLED PERSON, the interest to which the decedent would have been entitled shall pass to the survivor of NAME OF GRANTOR and NAME OF GRANTOR.

(2)	If both NAME OF GRANTOR and NAME OF GRANTOR do not survive NAME OF DISABLED PERSON, the trust's principal and accumulated income shall pass and vest in CONTINGENT BENEFICIARY if s/he survives NAME OF DISABLED PERSON. If CONTINGENT BENEFICIARY does not survive NAME OF DISABLED PERSON the trust's principal and accumulated income shall pass and vest, per stirpes, to any then living descendants of CONTINGENT BENEFICIARY.

(3)	If none of the above-identified persons survive NAME OF DISABLED PERSON, then upon the death of NAME OF DISABLED PERSON, the Trustee shall pay the remaining property to the NAME OF DISABLED PERSON'S HEIRS AT LAW.

ARTICLE FIVE

TRUST ADMINISTRATION

AND PROTECTIVE PROVISIONS

This is a Discretionary Non-Support Spendthrift Trust. None of the principal or income of the Trust Estate or any interest therein, shall be anticipated, assigned, encumbered, or be subject to any creditors' claims or to any legal process. Furthermore, because this Trust is to be conserved and maintained for the supplemental needs of NAME OF DISABLED PERSON, who may be medically disabled or impaired throughout her life, no part of the Trust Estate shall be construed as part of NAME OF DISABLED PERSON'S estate, or be subject to the claims of voluntary or involuntary creditors of NAME OF DISABLED PERSON. No part of the Trust Estate shall be liable to NAME OF DISABLED PERSON'S creditors during her life or after her death.

No part of the Trust shall be used to supplant or replace public assistance benefits of any county, state, or federal agency, that has a legal responsibility to serve persons with disabilities that are the same or similar to NAME OF DISABLED PERSON'S, if an application for such benefits has been filed, or NAME OF DISABLED PERSON is receiving such assistance. No part of the Trust shall be used to supplant or replace benefits due from any insurance carrier under any insurance policy covering NAME OF DISABLED PERSON.

If the Trustee is requested to release any of the Trust Estate to NAME OF DISABLED PERSON to pay for benefits that public assistance programs are authorized to provide, if not for the existence of the Trust, or if the Trustee is requested to petition a court, or any other administrative agency, for the release of the Trust principal, interest, or income for such purpose, the Trustee is authorized and directed to deny such request, and is authorized, in the Trustee's sole discretion, to take whatever administrative or judicial steps the Trustee deems necessary to continue public assistance program eligibility for NAME OF DISABLED PERSON.

All reasonable expenses in establishing, maintaining, administering, and defending this Trust, including but not limited to reasonable attorney fees, accounting fees, Trustee fees, and costs shall be a proper charge to the Trust. Any person who serves as Trustee may elect to receive a reasonable compensation, to be measured by the time required in the administration of the Trust and the responsibility assumed in the discharge of the duties of office. A corporate Trustee will be entitled to receive as its compensation the fees that are then prescribed by its published schedule of charges for Trusts of a similar size and nature and additional compensation for extraordinary services performed by the corporate Trustee. A Trustee will be entitled to full reimbursement for expenses, costs, or other obligations incurred as the result of service.

The validity of this Trust shall be determined by the laws, including valid regulations, of the United States and the State of Texas.

The Trustee may seek the counsel and assistance of any guardian or conservator of NAME OF DISABLED PERSON, or others, including any state and local agencies that are established to assist the disabled. The Trustee should use available resources to assist in identifying programs that may be of social, financial, developmental or other assistance to NAME OF DISABLED PERSON. The Trustee shall not in any event, however, be liable to NAME OF DISABLED PERSON, or a remainder beneficiary of the Trust, or any other party for acts undertaken as Trustee in good faith. The Trustee shall not be liable for failure to identify all programs or resources that may be available to NAME OF DISABLED PERSON because of her disabilities, nor shall the Trustee be liable for failing to apply for any public benefits that may be available, it being Grantor's intent to give the Trustee sole and absolute discretion to determine whether or not such application should be made.

ARTICLE SIX

POWERS OF THE TRUSTEE

The situs of this Trust is Texas, and the Trustee may exercise all the powers awarded to Trustees in the Texas Trust Code, as amended, subject to the limitations created in the Trust Agreement. In addition, the Trustee may invest in non-income producing assets where such investment is appropriate in the Trustee's opinion. A Trustee is to serve without Court supervision. Notwithstanding the foregoing, the service of a Trustee is to be governed first by the terms, conditions, and authority prescribed by this Trust Declaration, and then as prescribed by the trust laws of the State of Texas.

No power enumerated in this instrument shall be construed to enable any person to purchase, exchange or otherwise deal with or dispose of the principal or income of this Trust for less than adequate and full consideration in money or money's worth.

A Trustee will have the discretionary authority to claim any obligation, expense, cost or loss as a deduction against either estate tax or income tax, or to make any election provided by Texas law, the Internal Revenue Code, or other applicable law or regulation, and the Trustee's decision will be conclusive and binding on all parties and shall be effective without obligation to make an equitable adjustment or apportionment between or among beneficiaries of the Trust or the estate of deceased persons.

The Trustee of this Trust may amend this instrument so that it conforms with any regulations that are approved by any governing body or agency relating to Supplemental Security Income benefits, Medicaid benefits, or any similar or successor programs.

ARTICLE SEVEN

TRUSTEE'S SUCCESSION AND

ADMINISTRATIVE PROVISIONS

If the Original Trustee, NAME OF TRUSTEE, fails or ceases to serve as Trustee at any time, NAME OF TRUSTEE shall serve as successor Trustee. Any person who serves as Trustee or Successor Trustee shall have the authority to appoint a successor Trustee if necessary. To be binding and effective, a designation of successor trustee must be in writing and must be acknowledged by the acting Trustee. The instrument of designation must be executed during the time that person or entity is actually serving as Trustee.

A successor Trustee shall have the authority vested in a Trustee by original appointment under this trust document, subject to any lawful limitations or qualifications upon the service of a successor imposed by one Trustee in a written document appointing a successor.

If there are two Trustees serving the Trust, both Trustees must sign any instrument transferring real property from the Trust. If the Trustees agree to do so, one Trustee acting alone may be given the primary responsibility of administration and accounting of the Trust and one Trustee alone may be authorized to deposit, transfer, and withdraw funds from any depository account held by the Trust. A Trustee, whether serving alone or with other Trustees, may give such powers to an agent by written instrument if desired.

Any Trustee may resign by giving thirty days prior written notice to NAME OF DISABLED PERSON, her conservator, guardian, or legal representative, if any.

ARTICLE EIGHT

IRREVOCABLE NATURE OF

THE TRUST AND BOND REQUIREMENT

This Trust shall be irrevocable. NAME OF DISABLED PERSON shall have no right or power whether alone or in conjunction with others in whatever capacity, to alter, amend, revoke or terminate this Trust, or any of the terms of this Trust Agreement, in whole or in part, or to designate the persons who shall possess or enjoy the Trust Estate. This Trust will not be subject to amendment except as may be specifically herein required and permitted by law.

The Trustee shall not be required to give any bond or other security for the faithful performance of the Trustee's duties under this trust. No Trustee shall be liable for any loss of Trust assets, except for any loss caused by the Trustee's bad faith or gross negligence.

ARTICLE NINE

DEFINITIONS

DESCENDANTS. The term "descendants" means the lawful lineal descendants of the person or persons to whom reference is made. The term includes descendants by lawful adoption by an adoptive parent or parents.

TRUST. "Trust" means the Trust created by this Trust Declaration.

TRUST FUND. The term "Trust Fund" or "Trust Property" means all property comprising: the initial contribution of corpus to the Trust; all property paid or transferred to, or otherwise vested in, the Trustee as additions to the corpus of this Trust; accumulated income, if any, whether or not added to the corpus of this Trust; and, the investments and reinvestment of the Trust property, including the increase and decrease in the values thereof as determined from time to time. The terms "corpus" and "principal" are used interchangeably.

TRUSTEE. For convenience, the term "Trustee" used in the singular, will mean and identify multiple Trustees serving and acting pursuant to the directions of this Trust Declaration. The term "corporate Trustee" will identify a banking or trust corporation with trust powers.

SURVIVE. For the purpose of vesting in the event two or more persons who have an interest in the trust die within a short time of one another, one must have survived the other for a period of at least 30 days as a condition to vesting.

GENDER, AND PLURAL USAGE. The use of personal pronouns, such as he, she, or it, are to be construed in context. The term "person" will include a non-person, such as a corporation, trust, partnership or other entity as is appropriate in context. The identification of person in the plural will include the singular and vice versa, as is appropriate in context.

MINOR BENEFICIARY. The term "minor beneficiary" identifies a Beneficiary who is less than 21 years old.

POWER OF APPOINTMENT, QUALIFIED BENEFICIARY DESIGNATION. Whenever this Trust gives a Trust Beneficiary the power or authority to appoint a beneficiary of the Trust, the designation must be in writing and be acknowledged in the form required of acknowledgments by Texas law or exercised by a will executed with the formalities required by law of the Trust Beneficiary's residence state; it must clearly evidence the intent of the Trust Beneficiary to exercise a power of appointment; and, the written beneficiary designation must have been delivered to the Trustee prior to the Trust Beneficiary's death or, if exercised by will, the will must have been filed for probate within three months from the date of the Trust Beneficiary's date of death and must subsequently be admitted to probate no matter the time interval. The term of this Trust may be extended if the qualified beneficiary designation requires that a Beneficiary's interest remain in Trust, or may be divided and be held as a separate trust which shall be governed by the terms of this Trust Declaration.

ARTICLE TEN

TRUST CONSTRUCTION, CONTINGENCY, AND TERM

The term of this Trust will be for the life of NAME OF DISABLED PERSON. For the term of the Trust, and unless otherwise prescribed herein, the Trust Property is to be held for the exclusive use and benefit of NAME OF DISABLED PERSON. The term of the Trust will continue for a reasonable term thereafter for the purpose of liquidation and settlement, and to conclude the administration of the Trust, pay expenses of termination and to distribute the Trust property to those entitled to it.

So long as the Trust exists, the Trustee shall hold, manage, and make distributions of income and principal as herein provided for the supplemental needs and benefit of NAME OF DISABLED PERSON. In construing the Trust Declaration, a construction should be made which will provide a greater benefit and protection to NAME OF DISABLED PERSON over any other person or organization who may be interested in the Trust.

The interest of any other Beneficiary entitled to receive trust property under the terms of this Trust, other than NAME OF DISABLED PERSON, who has not attained the age of eighteen years (the "required age") or who may be otherwise legally disabled or incapacitated, and whose interest is not otherwise covered by the provisions of this Trust, may, in the sole and absolute discretion of the Trustee, be continued in Trust, or be held as a separate trust, for the use and benefit of that person until that person attains the required age or until the person is no longer disabled or incapacitated. The Trustee may make an entire distribution of principal to a trust beneficiary prior to the required age if, in the Trustee's determination alone, the Beneficiary has demonstrated an ability to conserve his or her resources or if it is no longer feasible for the trust to continue considering the size of the trust and the time and cost to maintain the trust. The Beneficiary, with consent of the Trustee, may also extend the term of the trust.

Distributions to an incapacitated or disabled Beneficiary, or a Minor Beneficiary may be made in any of the following ways as in the Trustee's opinion will be most beneficial to the interests of the Beneficiary: (a) directly to the Beneficiary; (b) to his or her parent, guardian, or legal representative; (c) to a custodian of the Beneficiary under any Uniform Gifts or Transfer to Minors Act and/or Gifts or Transfers of Securities to Minors Act in the jurisdiction of residence of that Beneficiary; (d) to any person with whom he or she is residing; (e) to some near relative or close friend; or (f) by the Trustee using that payment directly for the benefit of that Beneficiary, including payments made to or for the benefit of any person or persons whom that Beneficiary has a legal obligation to support. The Trustee may in the Trustee's sole discretion instead hold the income or corpus for the account of that Beneficiary as custodian. A receipt from a Beneficiary or from his or her parent, guardian, legal representative, relative or close friend, or other person described above shall be a sufficient discharge to the Trustee from any liability for making the payments.

As long as the Trust is held for a Beneficiary pursuant to these terms, the Trust Beneficiary, using a qualified beneficiary designation, will have the right to appoint the beneficiaries of his or her interest in the Trust entitled to his or her interest upon the Trust Beneficiary's death. If the Trust Beneficiary dies prior to a final distribution of his or her interest from the Trust, without having made a qualified beneficiary designation, that person's interest will pass in equal shares to NAME OF DISABLED PERSON and NAME OF DISABLED PERSON, or if both of them are not then living, to the survivor of them then living, or if neither of them is living, to CONTINGENT BENEFICIARY, or if s/he is not then living, per stirpes to the descendants of CONTINGENT BENEFICIARY then living, or if there are none, to the NAME OF DISABLED PERSON'S HEIRS AT LAW.

In no event will the term of this Trust continue for a term greater than twenty-one years after the death of the last survivor of Grantor and all descendants of Grantor living on the effective date of this Trust Declaration unless continuation is for the benefit of a Charitable Organization. Any continuation of the Trust by the qualified exercise of a power of appointment will be construed as the creation of a separate trust and an extension of the Rule Against Perpetuities to the extent permitted by law. A court of competent jurisdiction is to liberally construe and apply this provision to validate an interest consistent with Grantor's intent and may reform or construe an interest according to the doctrine of cy pres.

IN WITNESS WHEREOF, NAME OF GRANTOR and NAME OF GRANTOR, Grantor, and NAME OF TRUSTEE, Trustee, have signed this document the ______ day of ________________, 199___.

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NAME OF GRANTOR, Grantor

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NAME OF TRUSTEE, Trustee

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NAME OF GRANTOR, Grantor

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