Most special needs trusts are third party special needs trusts, and they are taxed as a pass-through entity. What this means is that the trust has to file a tax return each year showing the income that it earned. Rents, dividends, interest, and any realized gains on sale must be reported.

Is a special needs trust considered income?

The federal regulations require that the funds must be administered by a trustee for the beneficiary’s sole benefit and, at the creation of the trust, the beneficiary of the trust must be under the age of 65. Each type of special needs trust will be considered from an income, gift and estate tax point of view.

What is the cost of a special needs trust?

Estimates suggest that you need $2,000 to $3,000 to create a special-needs trust, compared to the $300 to $600 average cost of creating a will. While a special-needs trust safeguards your child’s eligibility for government services and programs, a will does not.

Do you have to file a tax return for a special needs trust?

If the SNT’s income must be reported by the beneficiary on his own personal return, the SNT document should allow the SNT to pay the beneficiary’s income tax liability from the assets in the SNT.

Do you need to file Form 1041 for a non-grantor trust?

For a third-party SNT which is a non-grantor trust and has a filing requirement, Form 1041 must be thoroughly completed. The trustee will first need to determine the tax classification of the SNT.

What do you need to know about 1041 tax return?

Form 1041 is the U.S. Income Tax Return for Estates and Trusts. Similar to a Form 1040 on which individuals report their income annually to the federal government, Form 1041 is used by most trustees and other fiduciaries (i.e. executors, personal representatives and administrators of estates) to report income to the federal government.

Who are the attorneys for special needs trusts?

Tara is a founding partner of the law firm of Wilcenski & Pleat PLLC in Clifton Park, New York. She practices in the areas of Special Needs Planning, Elder Law, and Trust and Estate Planning and Administration. Tara writes and lectures frequently on issues affecting individuals with disabilities and their families.