Retirement Weekly: How can we provide for our disabled daughter in our estate plan?

by | Aug 5, 2022 | Stock Market

Q.: Hi Dan,  Can a trust and/or a special needs trust be the beneficiary of an IRA? Our special needs daughter cannot be a named beneficiary, but we have substantial assets in our IRA accounts. Same question for our large life insurance policies.  Thanks so much! Peggy

Read: Financial planning for children with disabilities is stressful — here are some resources for parents A.: Hi Peggy, Special needs is an area of the law that varies from state to state and can get complex fast. This is no place for a DIY approach. You should engage a qualified attorney with expertise in special needs planning to determine what is best for you and your family. I am not a lawyer so I am only going to answer with some generalities here. Yes, you can name a trust as beneficiary. The oversimplified explanation of the tax treatment is that income that is paid from the trust to the beneficiary is typically reported on the beneficiary’s tax return and taxes are paid at the beneficiary’s rate. Whereas the income that stays in the trust is reported on the trust’s tax return and paid at rates applicable to trusts. The differences between individual and trust tax scales are dramatic. In 2022, for a single taxpayer to reach the highest marginal federal tax bracket of 37%, they need to have taxable income over $539,900. A trust needs a mere $13,450 of taxable income to reach the 37% rate. Because of this difference, most people want the in …

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