TIRA, Roth or taxable investments into special needs trust

Submitted by Undocumented Newcomer on Thu, 2020-04-30 19:31

As part of our estate planning, I am trying to decide how to fund a special needs trust for our daughter and want to understand ramifications of using a TIRA, a Roth IRA and/or taxable investments.

I think that taxable investments would cause the trust to pay taxes at the trust rates for income and capital gains distributions. Can investments within the trust be transferred in kind to our daughter for her to sell at her capital gains tax rate? I presume that the basis will be reset at my death for either the trust or our daughter.

Would the trust pay taxes when the TIRA is disbursed or would the taxes be the responsibility of our daughter?

I presume that Roth IRA money would be tax free for both our daughter and the trust.

Thanks for your help in this matter.



Submitted by Bruce Steiner on Sat, 2020-05-09 16:06

  • If the trust distributes appreciated assets and your daughter sells them, the capital gain will be hers.
  • To the extent the trust distributes its income, the income will be taxable to your daughter.  To the extent the trust retains its income, it will be taxable to the trust.
  • Income taxation of estates and trusts is complicated.  You should consult with competent tax/estates counsel in planning your estate.
  • Bruce Steiner

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