Q: I have a special needs child who receives government benefits. My IRA makes up the bulk of my assets and I want her to benefit from it when I die. What can I do to ensure she has use of these funds without disqualifying her from public benefits?
A: The SECURE Act created new rules on how an IRA beneficiary can take their distributions from an inherited IRA. The general rule is if someone other than your spouse is named the beneficiary of your IRA, they must withdraw all funds, and pay the income taxes on them, within 10 years of inheriting them. However, there is an exception for beneficiaries who are disabled. The law allows the funds to be withdrawn over the disabled beneficiary’s lifetime. Potentially, these funds can be “stretched” for several years which provides significant tax advantages.
However, in order to fully protect your child and not disqualify them from essential public benefits, any inheritance, including an IRA, should be made payable to a Special Needs Trust (SNT) rather than directly to your child. If a Special Needs Trust is named the beneficiary of your IRA, the Trustee can withdraw the Required Minimum Distribution and use the funds to support the beneficiary’s needs without disqualifying them from any public assistance.
Estate planning, including the use of Special Needs Trusts, is very personal to the individual. Whether utilizing a Special Needs Trust for your retirement plans is the best plan for you and your family will depend on your exact situation. If you would like to consider incorporating a Special Needs Trust into your estate plan, please contact us at RKW Law Group so we can guide you through the process.
