Non-spousal beneficiary with special needs

Submitted by David Ryan on Thu, 2022-10-20 16:35

Adult child with disability inherits an IRA from parent for about $500k. Is it possible for a beneficiary IRA to be placed into a special needs trust so they can avoid losing their public benefits? Being disabled they would qualify for the exception to stretch the IRA over their own lifetime. Thank you.



Submitted by Alan - IRA critic on Thu, 2022-10-20 19:34

  • PLR 2006 20025 resulted in the applicant being able to transfer the inherited IRA into a self settled SNT. The drawback of a self settled trust is that govt benefits paid during the life of the SNT beneficiary can be recovered after the beneficiary’s death.
  • For this work an IRA custodian must be willing to cooperate, and it is not totally clear how the multi beneficiary Secure Act trusts will affect this. See p 25 and 26 of the following highly technical article.
  • 2022_05_24_ACTEC_Comments_on_Proposed_Regulations_IRS_REG-105954-20.pdf

Submitted by Bruce Steiner on Thu, 2022-11-10 23:01

  • The trust could simply say “to or for the benefit of.”  That should solve that.  
  • There should be some custodians that would allow this.  Presumably one did in the ruling you cited.  I think there have been a couple of other similar rulings.  At worst, the original poster could get his/her own ruling.
  • Getting means-tested government benefits isn’t enough to qualify as disabled for this purpose.  The beneficiary would have to be disabled within the meaning of Section 72(m)(7), which is essentially the same as the Social Security test.

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