You can now have an irrevocable special needs trust that has a charitable remainder beneficiary without the traditional concern about that donation affecting the term over which funds must be taken.

Historically, inherited retirement funds are required to be withdrawn over a ten year period. However the Federal Secure Act (now the 1.0 version) made an exception allowing a special needs beneficiary to instead elect to take the retirement funds over their natural life. The problem was what to do with the remainder. Often there was a desire to leave the funds to the organization that provided care or advocacy to the special needs beneficiary. However, adding a charitable remainder, upset the plan because then the election to take over the special needs beneficiary’s life was no longer applicable.

Fortunately a group of hard working individuals worked on a recent overhaul of the Secure Act (version 2.0) to permit the creation of a special needs trust using retirement assets which can be paid out over the natural life of the special needs beneficiary and it can have a charitable remainder beneficiary. Here is a statement from one of the committee members, attorney Christopher Smith:

“Special needs planners regularly encounter families who have accumulated large retirement accounts.  While the SECURE Act forced most beneficiaries of an inherited retirement account to take distributions out in 10 years (or less), beneficiaries with disabilities (referred to as “eligible designated beneficiaries” in SECURE) remain eligible to take minimum distributions over their entire life expectancies.  While planners used to try to keep retirement assets from hitting special needs trusts, many are starting to flip their thinking and leave more retirement assets to special needs trusts to take advantage of this life expectancy payout.

But there was still a problem if the family was charitably inclined.  Like the rules before the SECURE Act, a charitable remainder beneficiary of a special needs trust would likely ruin this life expectancy payout because a charity is not a person.  For example, if a family left an asset to a child with a disability and then the Arc of Michigan after that child dies, the child would lose the ability to stretch minimum distributions over the child’s lifetime.  Shamefully, it was typically the best legal advice to have the family name some far-off relative as a remainder beneficiary instead of benefitting a charity that has made a real difference in the family’s life.

Thankfully, the Special Needs Trust Improvement Act has now changed this.  It’s one small paragraph on page 915 of the recently passed 1653-page Consolidated Appropriations Act, 2023 (a.k.a. Section 337 of Secure 2.0).  A charity can now be the remainder beneficiary of a special needs trust without impacting the life expectancy payout for the beneficiary with a disability.”

If you need help with a special needs trust, Legal Assistant Len Kuyvenhoven and Attorney Don Passenger would love to discuss how we can help you.