Fundraising and the Special Needs Trust

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Clients occasionally come to us because their community would like to raise funds on behalf of their child with special needs.  It is important that a proper special needs trust is set up before these gifts are made so that assets are not inadvertently given to the special needs child individually.  A friend or family member of the special needs person can set up a third party special needs trust for the benefit of the special needs person, and those donating can write checks to the name of the special needs trust.  If this trust is structured properly, the funds donated can be used for the benefit of the special needs person but will not disqualify him or her from government benefits.

These types of donations are typically not tax deductible to the donor because the money is only being used for a particular person or family.  It is important to let the donors know that their donations are not tax deductible but instead, will be treated as a gift to the trust. 

The special needs trust could be structured to qualify for the annual exclusion gift, which would allow donors to give up to $13,000 each year to each trust beneficiary, without using any of his or her lifetime gift tax exemptions.  The special needs beneficiary cannot be a beneficiary for purposes of this $13,000, so other family members would need to be beneficiaries of the trust, as well, in order to take advantage of the annual exclusion.  This should be disclosed to the donors so that they understand both the tax and personal aspects of their donations to the trust. 

The special needs person could be the sole beneficiary of the trust if this is more desirable, but all donations to the trust will use part of the donor’s lifetime gift tax exemption, which is currently $5.12 million.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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