How Large Can Gifts Be to a Special Needs Trust?

gift tax return
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!

Contact Us

Contact Alabama Family Trust via the contact link below to learn more about special needs trust funds.

Learn More