Inbox Question | Tax Treatment of Special Needs Trusts: What You Need to Know
Big Picture Retirement®
Devin Carroll
4.7 • 545 Ratings
🗓️ 6 March 2025
⏱️ 10 minutes
🧾️ Download transcript
Summary
This week, we're diving into a question about the tax treatment of Special Needs Trusts. There are two types—First-Party and Third-Party trusts—but how does each one affect taxes? We'll break down key differences in taxation, who reports the income, and what trustees need to consider when filing returns. If you or a loved one rely on a Special Needs Trust, understanding the tax implications is essential. Tune in for a clear and practical breakdown!
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Transcript
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| 0:00.0 | Welcome to the Big Picture Retirement Show. |
| 0:07.7 | Today, we're going to the inbox to answer questions sent in by you, our listeners. |
| 0:12.7 | Now, if you'd like to send us a question, just head over to big pictureretirement.com and click |
| 0:17.3 | the Ask a Question tab in the top menu. |
| 0:19.8 | Oh, and just a quick reminder. |
| 0:21.2 | On this podcast, we provide general information |
| 0:24.3 | and not specific tax, legal, or financial advice. |
| 0:28.0 | But if you're ever ready to move from the broad education we provide here |
| 0:31.9 | to personalized advice that's specific to you, |
| 0:35.6 | you can find links to our websites down in the description. |
| 0:39.2 | Now let's jump in to today's question. |
| 0:45.6 | Okay, John, today's question comes from Brian. |
| 0:49.3 | This is a good question, too. |
| 0:50.6 | He says, could you talk about how both kinds of special needs trust are treated at tax time? |
| 0:58.4 | Yep. I'm absolutely going to let you take that one. No, you don't want that? I don't want anything to do with that one. |
| 1:04.8 | All right. So quick rehash, two types of special needs trusts, generally speaking, you have your first party trust. |
| 1:11.5 | This is where the disabled beneficiary is creating the trust for themselves with their own assets. |
| 1:19.3 | Now, when I say creating it for themselves, it might be created by a court for them. |
| 1:24.1 | It might be created by a parent for them. |
| 1:25.8 | But the fundamental part is that the disabled |
| 1:29.3 | person's own assets are what are going into the trust. Yeah. So that's where we get the first |
| 1:35.5 | party type trust. Then you have the third party trust. A third party trust, the typical scenario, |
... |
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