The Special Needs Alliance has published a new article by Lisa Nachmias Davis, CELA, entitled Naming a Special Needs Trust as Beneficiary of Your IRA or Retirement Plan.
The article details some of the issues involved in funding a special needs trust for a family member with special needs. Even if a person’s will provides for a special needs trust, wills only allocate property that does not already have a beneficiary designation. While naming a person’s estate as the beneficiary on death may seem like a workaround, the article points out that naming the estate as a beneficiary on death can have significant negative tax implications.
IRAs can be subject to required distributions that can be considered taxable income for income tax purposes. What those distributions entail and the full tax implications can vary depending on the beneficiaries listed in the beneficiary designation. While a special needs trust can receive advantageous tax treatment, this treatment only occurs in specific circumstances. Complications can arise in planning for other beneficiaries such as a spouse, other children, and charities.
The article also points out that new regulations are expected soon that could affect what the optimal planning strategies will be.
The complex nature of these issues highlights the importance of working with an experienced special needs attorney to create a plan that provides for a special needs family member in a way that will maximizes benefits for the special needs family member and other beneficiaries while minimizing the tax burden for everyone involved.
To create a plan to provide for your special needs family member, please call Mitchell, Brown & Associates at (314) 962-0186.
