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Should an annual tax return be filed, why or why not?

Detroit, MI |

Case: A Special Needs Trust (SNT) exists that is irrevocable. The trust is it's own entity and it has it's own TIN #. The trust exists to someday provide money for a disabled person who is the beneficiary of the trust for things that social security money does not provide; i.e. a handicap van for transportation. The SNT holds title to a Variable Live Insurance (VUL) policy. The VUL premiums are funded by 2 sources:
1. Tax free money (no 1099 is sent or received) that is given by the State to be used for the purposes of the disabled person ($200 mth) and
2. Gift money by friends and family for special occasionslikebirthdays (approx $200 a yr).
The above-desc money is deposited in an interest free checking account where it sits until it is automatically withdrawn monthly by the VUL

Attorney Answers 1


  1. As you correctly note, a special needs trust must obtain its own EIN and is a separate taxable enntity. The threshold for a trust to file an annual income tax return on Form 1041 is $600.00 of gross income (before deductions).

    See: http://www.irs.gov/pub/irs-pdf/i1041.pdf

    Of the sources you describe, the gifts from individuals are clearly not income. I am not 100% certain about the money from the state. The absence of a Form 1099 is not necessarily determinative. There are exemptions for certain disability payments, however, and you should have your tax advisor check those.

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