The four-part series on Special Needs Planning draws to a close this week, with a focus on taxes within a Special Needs Trust. Visit the three earlier blog entries this month for the most frequently questions Morton Elder Law receives about Special Needs Planning for your child.

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Question:

How is the income of a Special Needs Trust taxed?

The way that a Special Needs Trust is taxed depends on the kind of trust it is.

• D4A Special Needs Trust (also referred to as a Grantor Trust)– This trust is taxed on a child’s individual level. The trust itself is ignored and income is reported on the beneficiary’s individual tax return.
•  Third Party Trust – If a third party trust is created, then typically the trust is treated as a separate taxpayer. It will include a separate tax ID number. The income will need to be reported separately by the trust and taxed at trust income tax rates.

For more basics on Special Needs Trusts, check out the NOLO website.

With careful drafting, a Third-Party Trust can become a grantor, but this takes someone very well versed in the nuances of federal income tax of trusts.

The Academy of Special Needs Planners is a great resource for understanding more basics about the law surrounding Special Needs Trusts and taxation.

The Right People, for the Right Job!

Caring and planning for your special needs child can be overwhelming. At Morton Elder Law, it is our speciality. With great care and intentionality, we will set you and your child up for the most protection and success.

You’ve got questions, we’ve got answers. Contact Morton Elder Law today to set up an appointment.

~ Ronald Morton