Klenk Law

Are the funds I use to establish a Special Needs Trust for my daughter subject to inheritance tax?

Posted on Tue Oct 27, 2015, on Estate Planning

From our “Ask a Question” mailbag: I want to form a Special Needs Trust for my daughter in my will, to be funded at my death. Will the money I put into the Special Needs Trust be subject to the PennsylvaniaInheritance Tax?

The Pennsylvania Inheritance Tax rate for transfers to children is 4.5%. This tax is payable whether you give the child money outright or if you place the money in a trust. A Special Needs Trust is an Irrevocable Trust that has the added language allowing the money to be available for a Special Needs Person’s care, but still allows that person to qualify for Medicaid.

Though the purpose of the Trust is a noble one, the tax must still be paid. Please contact me if you would like to talk about other techniques that can avoid the Inheritance Tax, such as forming an Irrevocable Trust during your lifetime or an Irrevocable Life Insurance Trust. These trusts are not for everyone, but they do avoid the Pennsylvania Inheritance Tax if designed and funded correctly.

If you have any other questions about Special Needs Trusts, feel free to contact our office for a free consultation.

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Pennsylvania, Philadelphia

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