Can SNT Include Charitable Beneficiary and Qualify Under the SECURE Act?
I just read your article about IRAs being paid to trusts. Is a special needs trust for grantor’s disabled son an “eligible designated beneficiary” under the SECURE Act, so as to spread required minimum distributions (RMDs) over his lifetime, if (1) the income of the trust is payable in trustee’s discretion for son’s needs to supplement public programs and (2) after son dies, there is a charitable gift of a portion of the residue with the rest going to named nieces and nephews, or their surviving issue?
No. While a special needs trust can be an eligible designated beneficiary, it cannot be if it has any funds going to charity. This is because for special needs planning purposes, the trust must be a so called “accumulation” trust rather than a “conduit” trust. The remainder beneficiaries must be identifiable individuals younger than the primary beneficiary. So they can be nieces and nephews as long as they’re all younger than the disabled beneficiary of the trust.
It’s interesting that the SECURE Act reversed our prior advice with respect retirement plans and trust planning. Prior to passage of the SECURE Act, any retirement plan beneficiary could “stretch” the RMDs over their life expectancy. For non-disabled beneficiaries, we could use conduit trusts which provide for such payouts to be distributed to the beneficiaries. These trusts do not have any restrictions on the remainder beneficiaries. We often counseled families with both disabled and non-disabled children to steer their retirement plans to the non-disabled children and other assets to the special needs trust for the disabled child in order to avoid the complications and restrictions of accumulation trusts.
However, after the SECURE Act, the non-disabled beneficiaries may only delay retirement plan distributions and the payment of taxes for 10 years following their inheritance of the account. Disabled beneficiaries, on the other hand, can still stretch the RMDs over their lifespan. So, now it is often worth the extra difficulty of having those funds go to an accumulation special needs trust for their benefit.
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