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There are various types of trusts to protect assets and offer financial support, and each offers a unique
set of limitations and benefits. One type of trust that offers significant flexibility is the inter vivos trust
or a living trust. The inter vivos trust is developed during the settlor's lifetime, which allows them to
transfer assets to a trustee for the advantage of the trust's beneficiaries (Van Zyl, 2019). An inter vivos
trust offers great control to the settlor over their assets, which is one of the great benefits. Here, the
settler can specify when and how to distribute their assets. In addition, inter vivos trusts can also help
to avoid probate, which can be expensive and time-consuming as it is already owned and established
assets. Moreover, an inter vivos trust provides great privacy, which is a great advantage. When an
asset goes through probate, the distribution and details of the assets become part of the public record.
But the details remain private with an inter vivos trust as the trust is a private document.
An inter vivos trust has some disadvantages that include being more complex to maintain and set up
compared to another type of trust. It involves additional administrative and legal costs to transfer
assets (Van Zyl, 2019). In addition, it also ensures it remains effective and valid. Moreover, an inter
vivos may not provide more asset protection like another type of trust, as the settlor has control over
the assets.
An inter vivos trust is governed by state trust laws in terms of statutory authority that can differ by
state. Moreover, the validity of inter vivos trusts is upheld by the court in terms of case law, where the
settlers have the right to control the trust. However, the court has also recognised the controlling
limitations of the settlor when it comes to the interests of the beneficiaries and the trustee's fiduciary
duties. Further, the American College of Trust and Estate Counsel (ACTEC) gives guidance for
different professions, including counsellors and attorneys who advise clients on trust (American Bar,
2023). These codes focus on the significance of acting in the best client's interests and maintaining the
confidentiality of the client's information. Overall, inter vivos trusts provide control over assets and
significant flexibility, but they also need careful management and planning to be effective. If a settler
is considering an inter vivos trust, then they must weigh the drawbacks and benefits carefully and get
advice from a professional attorney.
Trust, the SPECIAL NEEDS TRUST. A Special Needs Trust (SNT) also known as a Supplemental
Needs Trust, is an estate planning tool that allows Grantors (those opening the Trust) for minors or
disabled persons (Trustor) to maintain his or her eligibility for public assistance benefits, despite
having assets that would otherwise make the person ineligible for those benefits.
There are two types of SNTs: First Party and Third Party funded (DHCS, 2021). First Party funded
means that the Trust is started and initially funded by monies already owned the beneficiary, Third
Party funded are when the initial contributions for the creation of the Trust comes from any one other
than the beneficiary themselves (SNA, 2023). This trust is a QUALIFIED DISABILITY TRUST,
whose form falls under the irrevocable “family trust” line and is “complex” in its formation for
income tax purposes (Anderson et al., 2023). The trust itself is responsible for reporting its own items
of income, deduction, and credit. And as we’ve already learned a trust that does not require
distribution of all its income by the terms of the trust agreement is called a “Complex” Trust.
A “Qualified Disability Trust” or “QDT” is allowed the same exemption as an individual under IRS
Code §642(b)(2)(C). There are many advantages to having a SNT, it eliminates many problems one
has when caring long-term for disabled loved ones. One major problem that it solves is that relieves
one from the overwhelming pressure parents/grandparents face when they are thinking of how their
special needs loved ones will carry on in life once they are no longer there to oversee and provide for
them.
By starting a SNT, assets left to the disabled descendant will be managed by a Grantor chosen Trustee,
can be invested to earn additional income to continue to grow and provide beyond the initial
inheritance, and still allow the Trustor to benefit from mean based social programs that can help
bridge their financial gap due to their greater (and growing) medical needs. In many of these cases the
Grantors (parents/grandparents) are the only consistent helpers and guardians in the Trustors
(child/inheritors) lives, so trusting strangers with the task to take care of them as well as they would
themselves is always a concern.
But with a SNT, a trusted Trustee is set over the funds they want to leave to their loved ones and in
many cases the Trustee is usually another abled bodied inheritor and relative of the Trustee. A Special
Needs Trust is also very flexible and advantageous in the areas and items that it covers for the Trustee.
Continuing Education, Vacations, vehicles, and all things medical are just a few things approved for
use under a SNT. Unfortunately, all Trusts have their downsides. One major disadvantage (pitfall) that
confuses many Trustees, causing them to unknowingly commit serious troubles to the life of the Trust
(entity) and Trustor is found in the handling of both new contributions and methods of distributions.
A SNT is allowed to earn income but in most states the income is capped at both a time and amount
earnings base, meaning there is a limit to income earned by the Trust both monthly and in totality. In
the Commonwealth of Virginia, the limit is based on both the income and the medical expenses. In VA
a SNT has a monthly income cap amount of $800. Whereas the total Trust limit is $500,000.00 (except
for in the Trust initial year) (The Arc, 2022).
The Trustee must be careful about not disqualifying the beneficiary for public benefits by giving them
too much money, by making too much money, or by giving money directly to the beneficiary. Good
training and instructions must be given to the Trustee to be able to follow/determine the fiscal, medical
and personal needs (not wants) of the Trustor are, and often that's not done in trusts like these (Singer
& Stern, 2023). Because of the nature in relationship between the Trustee and Trustor (the reluctance
to say no to unauthorized illegal Trust distributions to loved one), the lack of Administrative Trustee
training (unknown repetitive accounting/tax errors), and misused of both new contributions and
distributions (acts of embezzlement due to familiarity to Trustors mental and physical limitations)
(SNA, 2023).
For my set of the research, I chose to review Complex trusts which are "trusts that are not required to
distribute all their income currently." (Anderson, 2023) Unlike simple trust which is a trust that must
distribute all their income but have no power to make charitable contributions, complex trusts have a
distribution deduction, this deduction is the sum of all the income required to be distributed or is
distributed but cannot exceed the distribute-able income. Another deduction that is available is the
personal deduction which is dependent on how the trust is classified. If it required to be paying out all
its income, makes no charitable contributions, distributes principal it is classified as complex and has
the exemption of $300. Another option for a complex trust is required to pay out all its income, is
authorized to make charitable contributions, distribute no principal also has the exemption of $300. If
there is authorization to make discretionary distributions of income, but not principal, and does not
make any charitable contributions the personal exemption would be $100. In the situation where there
is authorization to make discretionary distributions of both income and principal, but make no
charitable contributions it is also classified as complex with the personal exemption of $100. One
thing I found interesting in my research is "it's also possible to convert a simple trust to a complex
trust and vice versa, if you find your needs change." (Sember, 2023) I am not sure why, but I thought
had it be one and stick with it. In something like the revocable and irrevocable trusts, I have since
learned that that is not the case. Revocable, irrevocable trusts and grantor trusts are the three main
types of trusts and they are classified as simple or complex. "Being aware of the income tax aspects of
these commonly used estate planning tools can help the attorney and client make choices that can
minimize the federal and state income taxes payable at different stages of the trust’s existence."
(Hughes, 2012)
Inter Vivos is a Latin phrase which means “while alive” or “between the living.” This phrase is
primarily used in property law and refers to various legal actions taken by a given person while still
alive, such as giving gifts, creating trusts, or conveying property (Cornell, 2023). And just like in life
a living and breathing entity can grow, develop, suffer loss, and die; a Trust can do the same. Section
602(a) of the Uniform Trust Code states that “[u]nless the terms of a trust expressly provide that the
trust is irrevocable, the settlor may revoke or amend the trust” (ACTE, 2023). This is why revocable
or inter vivos trusts are never “set in stone”, they can change, revoke, or amend, whereas irrevocable
Trust gifts are just that, irrevocable (D & D, 2019).
Though there are some loopholes in amending” irrevocable Trusts, they are only used to terminate
the existing Trust to give way to correcting and “rebirthing” it. In cases where they need to change
beyond the confides of their current formation or wealth of the Grantor (usually during times of
converting from simple to complex). As most Special Needs Trusts are irrevocable and complex in
nature, they are not subject to modification, amendment, or termination without the grantor's
permission (Manassas, 2021). And as a complex trust, its funds are largely retained and earn interest
income and capital gains throughout its life.
5 Ways to Amend an Irrevocable Trust (July 26, 2019) Doane & Doane Attorney
https://www.doaneanddoane.com/can-an-irrevocable-trust-be-amended-here-are-the-5-
ways#:~:text=Irrevocable%20trusts%20are%20just%20that,cannot%20revoke%20or%20amend%20t
hem.
Boubir, N. (2021) Special Needs Trust Attorney Manassas Law Group. e e e
https://www.manassaslaw.com/estate-planning-administration/special-needs-
trust/#:~:text=SNTs%20operate%20as%20a%20common,the%20permission%20of%20the%20granto
r.
Inter Vivos (n.d.). Cornell University Law LLI / Legal Information Institute. Retrieved May
13, 2023.
https://www.law.cornell.edu/wex/inter_vivos#:~:text=Inter%20vivos%20is%20a%20Latin,creating%2
0trusts%2C%20or%20conveying%20property.
Special Needs Trusts | SNT | Supplemental Needs Trusts | The American College of Trust and
Estate Counsel. (n.d.). The American College of Trust and Estate Counsel.
https://www.actec.org/estate-planning/special-needs-trusts-snt/
Anderson, K.E., Pope, T.R. & Rupert, T.J. (2023) Taxation 2023 Corporations, Partnerships, Estates &
Trusts Pearson. (Chapter 14 Income Taxation of Trust and Estates)
Sember, Brette J.D (2023) Simple trust vs. complex trust Retrieved on:
https://www.legalzoom.com/articles/simple-trust-vs-complex-trust
Hughes, Barbara (January 2012 - Vol. 6, Issue 2)A Short Primer on Trusts and Trust Taxation
Retrieved on: https://www.specialneedsalliance.org/the-voice/a-short-primer-on-trusts-and-trust-
taxation-2/
Anderson, K.E., Pope, T.R. & Rupert, T.J. (2023) Taxation 2023 Corporations, Partnerships,
Estates & Trusts Pearson. (Chptr 14 Income Taxation Of Trust and Estates)
Filing A Tax Return for a Special Needs Trust (March 2021) SNA Special Needs Alliance
THE VOICE Vol. 15, Issue 4 Retrieved May 11, 2023.
https://www.specialneedsalliance.org/the-voice/filing-a-tax-return-for-a-special-needs-trustwhat-a-
trustee-needs-to-know-at-tax-time
IRS Code §642(b)(2)(C)
Singer, S., & Stern, P.S. (2023) Special Needs Trusts SNT Supplemental Needs Trusts. The
American College of Trust and Estate Counsel. ACTEC. Retrieved May 11, 2023.
https://www.actec.org/estate-planning/special-needs-trusts-snt/
Special Needs Trust (2021) Department of Health Care Services DHCS CA.gov Retrieved May
11, 2023. https://www.dhcs.ca.gov/services/Pages/Special-Needs-
Trust.aspx#:~:text=A%20Special%20Needs%20Trust%20(SNT,Party%20and%20Third%20Party%20
funded.
The Arc Comparing Special Needs Trusts and the VA -ABLE (September 21, 2022)
https://thearcofnova.org/wp-content/uploads/sites/6/2021/01/SNT-vs-VA -ABLE-09.21.22.pdf
Van Zyl, R. (2019). The question of rights, acceptance and amendments of inter vivos trusts in terms
of the stipulation alteri. South African Law Journal, 136(4), 717-748.
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