Full question:
I'd like to open a special needs trust fund for my brain-injured son who is an adult and has just been granted social security benefits. He received $30,000 in back SSI payments. Going forward, his monthly payments will be SSDI. Even though it's my understanding that SSI money cannot be seized for child support, he was concerned that it would be and so we opened a savings account in my name for the money. My question is, would the Special Needs Trust be a good vehicle for him (with me as the trustee) and will I have to pay income tax on the money if it's in an irrevocable trust?
- Category: Trusts
- Date:
- State: Washington
Answer:
Social Security Disability (SSD) payments are generally protected from legal attachment, but they can be garnished for child support. A special needs trust can be beneficial for your son, as it allows for additional support beyond basic needs without jeopardizing his eligibility for government assistance like Supplemental Security Income (SSI) and Medicaid.
Special needs trusts are governed by federal law (42 U.S.C. § 1396p(d)(4)) and can provide the trustee with broad discretion to manage distributions for the beneficiary's benefit. This setup helps to ensure that your son can receive necessary support while maintaining his public assistance benefits.
Regarding taxes, an irrevocable trust can have different tax implications. Typically, if the trust is structured properly, the income generated may be taxed to the trust or the beneficiaries, depending on the trust's terms. Most irrevocable trusts are designed so that the settlor (you) does not pay taxes on the income, but rather the trust or the beneficiaries do. It's important to consult with a tax professional to fully understand the implications for your specific situation.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.