The primary funding for a Special Needs Trust is a term life insurance policy worth $150,000. The Trust is the sole beneficiary. Will the money avoid the high Trust taxation and be allow to sit in the trust because it came from a life insurance policy? Also, will the money still be tax free when it is distributed from the trust to the beneficiaries?
Wills and Living Wills Lawyer
What taxes are you worried about? Life insurance payout is not taxable income. Only interest after death is income. Talk to a tax accountant or tax attorney for specific advise based on the terms of the trust and future distributions.
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I agree with my colleague, you should speak with a tax attorney or accountant. They will need to see the trust documents so that they can discuss the tax consequences of the life insurance proceeds now and in the future.