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Form 1041 Compliance for Special Needs Trusts: First-Party vs. Third-Party, Qualified Disability Trusts

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, November 13, 2018

Recorded event now available

or call 1-800-926-7926

This course will provide tax advisers with a practical guide to meeting the unique challenges of reporting the trust income of an SNT on Form 1041. The panel will give you tools to differentiate between types of SNTs and describe the specific tax filing requirements of a QDT versus a first-party trust versus a third-party grantor trust vs. a non-QDT 3rd party complex trust. The webinar will outline how to complete the 1041 for both complex trusts and QDTs and offer guidance on determining the type of trust from the operating documents.

Description

Special needs trusts (SNTs) are an integral part of a special needs planning practice but can create specific challenges for fiduciaries and tax advisers. Determining whether the trust or the beneficiary is required to file an income tax return and how to allocate any income tax can be complicated for even seasoned tax professionals. To handle these trusts properly for clients, tax advisers must be able to determine whether the trust is a first- or third-party SNT, as well as the special rules for operating and reporting a qualified disability trust (QDT).

SNTs are designed to supplement and protect public benefits eligibility for persons with disabilities. A first-party trust is funded by assets owned by the beneficiary of the trust and is treated by default as a grantor trust to the beneficiary with disabilities. A critical early decision is whether to obtain a separate Tax Identification Number (TIN) for the trust with supplementary disclosures or to simply report the income on the beneficiary’s 1040, which does not require a separate 1041.

Someone other than the beneficiary funds a third-party trust, which is treated as a complex trust. These trusts generally must report income on a separate Form 1041. QDTs are a subset of SNTs with special rules, and a “deemed personal exemption amount.” Tax advisers must understand the specific rules to ensure that the SNT is eligible for treatment as a QDT.

Listen as our experienced panel provides a practical guide to meeting the fiduciary and compliance challenges of SNTs and QDTs.

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Outline

  1. Identifying SNT structures (first-party vs. third-party)
  2. Options for filing 1041 return for first-party/grantor trusts
    1. Whether to obtain a TIN
    2. Disclosures when filing a separate return for SNT
    3. Grantor trust information letter
  3. Reporting third-party SNT income
  4. QDT special rules and tax reporting
  5. SNTs funded by retirement accounts and see-through provisions unique to SNTs

Benefits

The panel will review these and other relevant issues:

  • Deciding whether to obtain a separate TIN for a first-party/grantor SNT
  • Reporting requirements when filing a 1041 for a first-party SNT
  • Integrating ABLE accounts with SNTs
  • QDTs and filing 1041 income tax return for a QDT
  • Impact of tax reform on SNTs

Faculty

Mills, Darren
Darren J. Mills, Esq., CPA, ChFC, CLU
Attorney
Mills Law Office

Mr. Mills has more than 20 years of experience advising both middle market companies and large multi-nationals...  |  Read More

Rubin, Benjamin
Benjamin A. (Benji) Rubin, JD, LLM (Tax)
Partner
Rubin Law

Mr. Rubin focuses his practice on providing legal advice for families of individuals with special needs, including...  |  Read More

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