Special Needs Trust Grantor Tax Liability?

Forum|Forum|2 years ago
January 9, 2024
1 reply
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My oldest son (26) is challenged by mental health issues (he's doing okay right now). His grandmother gave him $50k as a gift, and at the time, we set up a brokerage account with my wife as a signer (he can't get the money without her sign-off, but he hasn't tried anyway). He does not make enough money to pay all his bills, and has managed to get into subsidized housing in Virginia, but to get the subsidy these funds need to be put into a Special Needs Trust that he cannot access. We've already set up the trust, but we need to move the funds from the brokerage to the SNT. Questions:

When setting up the SNT account, who is the grantor? My wife (who is working to set it up) is listed in the trust as the Settlor and Trustee. There's no mention of "Grantor."
If yes, will her SSN suffice or do we need to get a TIN? These are the only two choices at Fidelity for the Grantor.
If she is the grantor and uses her SSN to set up the Trust Account, will this affect our taxes at all? The account is taxable, and will be invested and (hopefully) growing through re-invested interest and dividends.

Not A Product Question

Anonymous_

Employee

You need to consult local legal counsel in order to get the trust established properly.

See https://www.avvo.com/estate-planning-lawyer.html

Most likely you want the trust to be a qualified disability trust (QDisT).

SteveJ57Author

Thanks for your message. The Special Needs Trust itself is already a legal entity established with the assistance of an estate attorney. That's a done deal. My questions are about setting up a trust *account* to fund it, and if funding it will create a taxable event for us (vs. for the trust). Sorry if that was not clear.

I didn't realize this was posted in Business & Farm. Probably not the right place for it. Is it frowned upon to re-post it in a more appropriate forum category?

DaveF1006

It depends. First of all, your wife may be the grantor since she is the creator of the Trust. As the name suggests, a Grantor “grants” assets or property to a Grantee (beneficiary - the person or entity receiving the assets. Your son would be considered the beneficiary in this case.

As far as using an SSN or TIN, it depends on the type of trust whether it is established as a revocable or irrevocable trust. If the trust is irrevocable, it needs to have its own TIN. If it is revocable, then your wife may use her own Social Security Number as she can make changes to the trust once it is in force. You may ask your estate attorney if the trust he/she set up is revocable or irrevocable.

Now for the most important part of your question. If you add your own assets to the account, this is considered a gift thus you would need to file a gift tax return if the gift is over $17,000. Since a gift tax return is filed individually and not jointly, you may contribute up to $34,000 between the two of you and you will not have a Gift Tax reporting requirement.

If the trust is set up as a separate entity with its own EIN, it will be responsible for paying the tax and then passed on the the beneficiary. The beneficiary (your son) will be responsible for paying the taxes and be issued the K1 to report on his tax return.

If it is a revocable trust or grantor trust (same thing), your wife will be responsible for the payment of taxes to be reported on your individual joint tax return.

@SteveJ57

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