Irs Definition Of Qualified Disability Trust

The legal authority to create a qualified disability trust qdist falls under 642 b 2 c of the internal revenue code.

Irs definition of qualified disability trust. For tax year 2019 a qualified disability trust can claim an exemption of up to 4 200. A qdist must be irrevocable. The irs defines disability for this purpose in irc 72 m 7 and the definition is quite strict. A tax information statement that includes the information given to the irs on forms 1099 as well as additional information identified in regulations.

A qualified disability trust or qdt is allowed the same exemption as an individual under irs code 642 b 2 c. These trusts must meet the description listed in the social security act 1917 c 2 b iv 42 u s c. To qualify as a qdist the trust must meet the following criteria. An individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long.

Internal revenue code 642 b 2 c specifies which trusts may receive the qualified disability trust designation and claim the personal exemption amount. 1396p meaning trusts that qualify as special needs trusts snts. The special needs beneficiary must be receiving ssi or ssdi benefits at the end of the tax year. In order for a disability trust to qualify under the the irs rules it must meet certain criteria which can be found in 42 u s c.

1917 c 2 b iv which is commonly referred to as 42 usc 1396p c 2 b iv u s. There is for example a special kind of tax beneficial trust called a qualified disability trust that would be a perfect place to utilize the tax code s definition of a qualified disability expense right. What is a qualified disability trust. To qualify as a qualified disability trust the trust must be established and funded by an estate or someone other than the disabled beneficiary and before the beneficiary attains the age of 65 years.

Qualified disability trusts offer added benefits for the betterment and protection of the beneficiaries by allowing the trustee to claim a full income tax exemption for trust income. Trusts that meet the requirements of this law are called qualified disability trusts. For the definition of a whfit see regulations section 1 671 5 b 22. Disability trusts or qualified disability trusts are created for the purpose of caring for a disabled person in the event of their caretaker s death.

The personal exemption in 2012 is 3 800. Tax time approaches and trustees of special needs trusts and their accountants should pay attention to the qualified disability trust provisions of the internal revenue code. A new publication from the special needs alliance addresses the qualified disability trust qdist tax rule and explains when to use it.