Funding a Special Needs Trust : Part II

Posted by Patricia Manko on Thu, Jun 14, 2012 @ 11:35 AM

The establishment of a special needs trust can provide a false sense of security that you are all set.  The money that funds the trust will secure the resources for your loved one to be cared for.

describe the imageIf you and your advisors determine that it would be most beneficial to fund your special needs trust during your lifetime, the following lists the more common ways to fund the trust: 

  • Establish an account in the name of the special needs trust.
  • Make gifts of liquid assets out of savings, or regularly fund the special needs trust on a periodic basis.  It is, however, important to ,make sure you stay with the IRS prescribed limits for annual gifts allowed within the provisons of the annual gift tax exclusion ($13,000 in 2012)
  • Gift assets that are likely to appreciate to the special needs trust.  Generally speaking, this would reduce the estate tax implications at the death of the donor.
  • If you do gift  investments other than cash, it is important to provide the cost basis of the original purchase price. This will be helpful when or if the assets are sold.
  • Own or purchase real estate property in the name of the trust.  You need to be mindful of the income tax consequences for both the trust and donor, as well as the potential increase in trustee fees. When real estate is owned in the name of a trust, it is often more difficult to obtain a mortgage on the property.
  • Own or purchase life insurance in the name of the trust.  You need to be mindul of the impact on the beneficiary's eligibility for government benefits.
  • Be mindful of the fiduciary responsibilities of the trustee of the speical needs trust.  Remember, it is important not to make distributions directly to the beneficiary.  All checks should be paid to either the service providers or vendors.

Tags: Special Needs Financial Planning, Special Needs Trusts

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