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What Does Funding A Special Needs Trust Actually Mean?


To fund a trust means to make the trust an owner of certain assets. If you think of the trust as being like a corporation, then funding it is transferring the title so that the trust, like a corporation, owns the assets. So we do this in different ways depending on what types of assets there are. For real property, we use a deed that is recorded with the county recorder. For investment assets or bank accounts, we change the title or registration of the account to name the trust as the owner at the institutions. On their records it shows the trust as the owner.

Why Is Funding A Special Needs Trust So Important?

A trust can exist without assets but it doesn’t have any effect. A trust only has effect in that it can manage the distribution of assets. So without the transfer of assets into the trust, the trust is not at all effective.

What Happens If Someone Forgets To Fund The Special Needs Trust?

First and foremost it is a breach of the trustee’s fiduciary duty. It is the duty of the trustee to act in a prudent responsible manner for the benefit of the trust beneficiary. It also is going to affect the management of the assets that are supposed to be in the trust and any required accounting or tax reporting that is supposed to be done.

Who Is Responsible For Funding The Special Needs Trust?

The trustee could hire an attorney to do this; in fact, that’s a very good idea. However, it’s still the trustee’s obligation to make sure that it’s done, and so the trustee needs to be aware that this is a requirement and be sure that they’ve either done it themselves or have retained a professional to do it for them.

Can You Walk Me Through The Steps Entailed In Funding A Special Needs Trust?

Funding a special needs trust is not terribly complicated. The first step generally is to get a taxpayer ID number from the IRS, known as an Employer Identification Number (EIN). This is like the social security number for the trust. It allows the IRS to identify the trust as a separate legal entity. Once the trustee has obtained an EIN, then the trustee simply goes to the institutions with a copy of the trust and the taxpayer ID number and the institutions will transfer the accounts for them. If it’s real property, an attorney can transfer that property into the name of that trust for the trustee.

Why Is The Accounting Associated With The Special Needs Trust So Important?

First, it is the main method of communicating with the beneficiaries as to what the trustee is doing with their money, and so it assures them that the trustee is only using those funds for the benefit of the beneficiary and is only paying expenses that are appropriate expenses. Secondly, with a special needs trust, it gives proof to any government agencies that are paying benefits to the beneficiary that these funds are only being used for approved purposes, that will not deprive the beneficiaries of their government benefits.

Who Is In Charge Of Keeping The Accounting Of A Special Needs Trust?

The trustee is ultimately responsible for this. Again, like hiring an attorney, the trustee is allowed or even encouraged to hire a bookkeeper or an accountant to keep the financial records of the trust and to maintain current accounting. So the trustee may employ an accountant, but the trustee is ultimately responsible to make sure that it gets done.

What Is Included In The Accounting Of A Special Needs Trust?

It’s an ongoing record of transactions of the trust. We start with what accountants would call a “balance sheet,” which is just a list of all the assets that you started with during the accounting period, at the beginning of the trust and then each accounting period thereafter, whether it’s done quarterly or annually. It’s the list of assets and their value at the beginning of that period. Then there is a listing of all the transactions during that account period. So that would include income that was received. This could be rents, dividends, and interests.

Any gains on sales of assets are also included. So if there were securities or property that were in that trust that were sold during that accounting period for more than their initial value, then that gain on sale is reported. Losses on sales are included too, such as if the assets have decreased in value and then were sold. It also includes all expenses of the trust and any distributions made to the beneficiary during that time. From all of that information you end up with a new balance sheet that shows the assets at the end of that accounting period which will then be the beginning point for the next accounting period, and it continues that way.

For more information on Special Needs Trust, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (626) 385-6303 today.

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