Yes! Until relatively recently, unless written as grantor trusts, special needs trusts were typically treated as “complex” trusts for income tax purposes. Trusts considered to be qualified disability trusts are entitled to the same personal exemption allowed to all individual taxpayers when filing a tax return.

What type of trust is a qualified disability trust?

A Trust that does not require distribution of all its income by the terms of the trust agreement is called a “Complex” Trust, and is allowed an exemption of $100. A “Qualified Disability Trust” or “QDT” is allowed the same exemption as an individual under IRS Code §642(b)(2)(C).

How does a disability trust work?

A special needs trust is a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income, Medicare or …

What is the difference between a supplemental needs trust and a special needs trust?

The term “special needs trust” refers to the purpose of the trust — to pay for the beneficiary’s unique or special needs. In short, the name is focused more on the beneficiary, while the name “supplemental needs trust” addresses the shortfalls of our public benefits programs.

Can a self settled special needs trust be a qdist?

A QDisT cannot be a grantor trust; the trust must be the taxpaying entity. A self-settled special needs trust can never qualify as a QDisT. The trust must be established for the benefit of disabled individuals 65 years of age or younger. The QDisT does not cease to be a QDisT after the beneficiary turns 65, but it must be established beforehand.

What kind of tax exemption do I get for a special needs trust?

Typically, this will be either a “complex trust” or a “qualified disability trust.” SNTs classified as qualified disability trusts receive an exemption equivalent to an individual’s personal exemption ($4,050 in 2017), whereas SNTs classified as complex trusts only receive a $100 exemption.

What to know about a special needs trust?

Knowing the type of trust is key to ensuring the maximum benefit to the person with a disability while still complying with laws. Attorneys can also help ensure the trust is created using the language necessary to make it valid and an attorney can help ensure the trust is broad enough to meet the evolving needs of the person as they age.

Can a qualified disability trust qualify as a qdist?

According to IRC 642 (b) (2) (C) (ii), a trust can still qualify as a QDisT if the corpus of the trust transfers to someone who is not disabled after all disabled beneficiaries are deceased. The main benefit of a QDisT is taxation. Under IRC §642 (b) (2) (C), a QDisT is allowed the same exemption as an individual when filing their tax return.