Qualified Disability Trust

Caring for a disabled child or family member typically entails trust creation, which ensures the person has access to essential funds throughout their life. However, trusts often come with quite a few complications, especially when it comes to tax matters.

Since 2003, Walk-In Wills has provided dependable and affordable estate planning services. Along with wills, we also provide guidance when it comes to the creation of trusts to ensure our clients can take full advantage of these beneficial tools.

What Is a Qualified Disability Trust and How Does It Work?

A type of special needs trust, the defining feature of a QDisT is that it’s tax exempt on the federal level. Keep in mind that contributions to trusts can create yearly income, which is then taxed. Depending on the amount of the contribution, the taxes generated could be quite exorbitant, thereby putting undue burden on the disabled individual’s parents or guardians.

By making QDisTs tax exempt, families face a reduced tax burden and less stress overall. Any income earned by the trust can be included in IRS Form 1041 and will be tax exempt provided that certain criteria apply.

What Kind of Requirements Apply to Qualified Disability Trusts?

There are certain criteria a special needs trust must match to be considered a QDisT, including:

The beneficiary of the trust must be under age 65 when the trust is created
The QDisT must be an irrevocable trust, meaning it cannot be changed
The disabled person must meet requirements established by the Social Security Act regarding the disability
The QDisT must only help the disabled person and not be used for any other purpose

In 2023, tax payers with QDisTs are permitted to claim up to $4,700. This figure often changes from year to year. For instance, the maximum amount was $4,400 in 2022.

Frequently Asked Questions

1. What is a qualified disability trust?

A qualified disability trust is a kind of special needs trust designed to help provide ongoing financial support for a disabled family member. Its main advantage is that, unlike many other trusts, income earned by the trust may be exempt from federal tax under certain rules, easing the tax burden on families.

2. What conditions must a trust meet to qualify?

To be considered a qualified disability trust, the trust must be irrevocable, set up solely for the benefit of a disabled person, and the beneficiary must be under age 65 and meet disability criteria defined by federal law.

3. Why would someone choose this type of trust in their estate plan?

By meeting the qualification rules, the trust can reduce taxes on trust income, helping preserve more funds for the disabled individual’s needs without subjecting those funds to higher tax rates.

Why Should You Choose Walk-In Wills?

Now proudly serving individuals throughout Chandler, AZ, our estate planning team can perform a thorough review of your unique situation to provide the best possible guidance. From there, we’ll walk you through the estate planning process step by step, all within a soothing and relaxed environment.