Are funds received from a SPECIAL NEEDS TRUST taxable when the funds have been placed in a REVOCABLE TRUST?

Forum|Forum|3 years ago
January 25, 2023
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Best answer by Anonymous_

A special needs trust is a generic term, not exactly federal income tax terminology.

Is this a qualified disability trust?

See https://www.irs.gov/instructions/i1041#en_US_2022_publink1000286061

Regardless, moving corpus (principal) from one trust to another is rarely a taxable event.

However, any income or gain that accrues during the tax year to the trust must generally be reported and, unless the income is tax-exempt (e.g., interest from a municipal bond), it is taxable.

Anonymous_Answer

Employee

A special needs trust is a generic term, not exactly federal income tax terminology.

Is this a qualified disability trust?

See https://www.irs.gov/instructions/i1041#en_US_2022_publink1000286061

Regardless, moving corpus (principal) from one trust to another is rarely a taxable event.

However, any income or gain that accrues during the tax year to the trust must generally be reported and, unless the income is tax-exempt (e.g., interest from a municipal bond), it is taxable.

LindaS5247

It sounds like this is a disability trust.

As per @Anonymous_ moving money from one trust to another is generally not taxable.

However, any income or gain that accrues during the tax year to the trust must be reported and, unless the income is specifically tax-exempt, it is taxable.

See the IRS Publication below for more information regarding Disability Trusts:

https://www.irs.gov/instructions/i1041

Also, as discussed by @MichaelL1 here is a very helpful article/website regarding “Special Needs Trusts”:

https://www.specialneedsalliance.org

Please also note, you can file a 1041 through TurboTax. However, you will need TurboTax Business Edition to do so. This is separate from the 1040 software.

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