Approximately 5 percent of American families have children with special needs. For the parents, the future care of those children often is their most pressing concern.
In two rulings (Rev. Ruls. 2002-17 and 2002-20), the IRS showed the way to help such parents use partially tax-deductible funds to enhance the future lifestyle of their special needs children while protecting their access to all important federal and state benefits. The IRS has clarified that a trust for the benefit of a “financially disabled” person can be the beneficiary of a charitable remainder trust without destroying the trust’s exempt qualification.
The parents can contribute highly appreciated securities to a charitable remainder trust (CRT), which provides a tax deduction. The income from the CRT can go to a special needs trust, which can enhance the child’s lifestyle. Because the assets are held in trust, the disabled children won’t be disqualified from receiving government benefits.