Newly introduced legislation may soon alleviate a challenge families sometimes face when planning for a loved one living with disabilities. In general, any funds left to such a beneficiary should be left in a special needs trust. This can get a bit complicated when the funds to be passed on include an IRA or other form of retirement plan, especially for those families who may wish to name the charitable organization that provides services for their loved one as a second beneficiary to such a trust.
Under the rules for retirement plans and trusts, if charities are named as beneficiaries the retirement plans must be liquidated and taxes paid within the five years following the death of the original owners. For retirement plans passing to most individuals, the time period for such liquidation is ten years following the death of the original owner.
However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which became law in 2019, carved out an exception for beneficiaries with disabilities or chronic illness. They can stretch the distributions over their lifetimes, postponing the payment of taxes.
Trusts can be written to preserve this longer withdrawal schedule, but not if they name a charity as a beneficiary. The Special Needs Trust (SNT) Improvement Act of 2022, intended to close this gap, would provide families the opportunity to name a charitable organization as a remainder beneficiary. The bill recently received bipartisan support from the Senate Financial Committee.
Among the entities in support of the SNT Improvement Act are the Special Needs Alliance, a national organization of attorneys advocating for people living with special needs and disabilities, the elderly, and their families.
“Individuals and families want to ensure that they can contribute to organizations that are providing essential services that are heavily relied upon by so many,” said Special Needs Alliance President Mary O’Byrne in a recent news release. “This act provides individuals and their familiar the ability to ensure that … services [for people with disabilities] can be supported in the future without a higher tax cost during the life of the special needs trust beneficiary.”