We’ve talked before about the complicated and misunderstood federal gift tax system, which places (very loose) limits on how much an individual can give away without having to pay a gift tax.
Today, we’ll focus more on giving gifts specifically to special needs trusts – and in particular, on the size of those gifts.
Do Gifts to Special Needs Trusts Qualify for the Annual Exclusion?
You probably know that the annual exclusion is the amount ($14,000) that a person is allowed to give to another individual within the calendar year without having to file a gift tax return to declare the gift.
Because of various complicated, obscure tax rules, a gift made to an irrevocable special needs trust usually won’t ever qualify for the annual exclusion. Of course, as with everything, there are exceptions to this; some trusts, for example, can be drafted in a certain way that does make them qualify for the annual exclusion.
In general, though, that $14,000 limit probably has no effect on a gift you make to an irrevocable special needs trust, because any gift you make to this type of trust must be declared on a gift tax return.
Gift Tax Returns
To sum up what we’ve said above, a friend or family member who doesn’t have millions of dollars and who is giving an amount to a loved one’s irrevocable special needs trust can give as large of a gift as he wants to, and will never need to worry about paying a gift tax on that donation – but will always have to declare the gift on a gift tax return.
Things are a little different when it comes to a revocable trust, though – especially if the gift-giver is also the grantor of the trust. In this case, any “gift” made by the grantor isn’t considered a gift at all, and no tax return is necessary.
Questions about Special Needs Trusts?
Gift taxes and the federal tax system have a complicated relationship, which means it’s essential that you consult with a special needs attorney so that you structure your gifts correctly.
If you’re interested in setting up a special needs trust for your disabled and/or elderly loved one, don’t hesitate to call us. We can help you protect your loved one’s future. Contact Alabama Family Trust today!