Philadelphia Special Needs Trust and PA Inheritance Tax

From our “Ask a Question” mailbag: My son is a special needs child and I have formed a Special Needs Trust in my will for his care. How do I fund this Trust without paying the Pennsylvania Inheritance Tax?

If you are unable to fund the trust until your death, then the only way to fund the trust without paying the 4.5% Pennsylvania Inheritance Tax on transfers to children (or to trusts for children) is to use life insurance.

Thanks to a skilled lobbying group, life insurance is exempt from the Pennsylvania Inheritance Tax.

From our “Ask a Question” mailbag: My son is a special needs child in Philadelphia on Medicaid, and I want to leave money at my death for his care. I have heard that Special Needs Trusts are becoming more liberal, is that true?

Special Needs Trusts have been available for many years, allowing parents to leave money for a child’s care that “supplements” but does not “supplant” what government programs provide. In this way, your child can qualify for Medicaid but the trustee can use the money you set aside for your son to provide him with the extra things that the government program does not provide.

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