Under New Law, Charities May Now Be Named As Remainder Beneficiaries In Special Needs Trusts

Special needs trusts (SNTs), also referred to as supplemental benefits trusts, often play an important role in helping families plan for children with special needs. SNTs allow assets to be left to a disabled or chronically ill person without disqualifying them for public benefits based on financial need, such as Medicaid.

A common asset often left that to an individual living with a disability is an inherited retirement account. However, until recently, families who sought to establish a SNT for a disabled loved one could not effectively designate a charitable organization as a remainder beneficiary. (A “remainder beneficiary” as referenced here is a person or entity who receives the assets remaining in a SNT after the principal beneficiary, who is the disabled loved one, passes away.)

Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in 2019, beneficiaries were mandated to distribute retirement accounts (IRAs) inherited after 2019 within 10 years from the owner’s date of death. However, particular beneficiaries are excluded from the 10-year distribution rule, including disabled or chronically ill individuals. Instead, these beneficiaries may have the retirement assets distributed to them over their lifetime. Unfortunately, charities were not included in any beneficiary category that could qualify for this more prolonged period under the SECURE Act.

Because of the differing rules for charities and disabled beneficiaries, the SECURE Act, until recently, did not allow creators of SNTs to name charitable organizations as remainder beneficiaries.

However, thanks to legislation recently passed by Congress, this is no longer the case.

In late 2022, significant changes affecting the SECURE Act were approved. Among its provisions was the Special Needs Trust Improvement Act of 2022. This new law allows charitable organizations to be named as remainder beneficiaries of special needs trusts holding inherited retirement accounts.

under the Special Needs Trust Improvement Act of 2022, it is now possible to name a charity as a remainder beneficiary of SNTs while also preserving the ability of the principal beneficiaries of SNTs, i.e., disabled persons, to benefit from the special lifetime payout rule that is available to them. The Act became law on December 29, 2022, and it applies to all SNTs created or amended in 2023 or thereafter.

The Special Needs Trust Improvement Act of 2022 is annexed hereto – [gview file=”https://vanarellilaw.com/wp-content/uploads/2023/01/BILLS-117s4426is.pdf”]

(This blog post is adapted from an article on the Special Needs Planners website. Attorney Donald Vanarelli, of Vanarelli & Li, LLC, is a founding member of Special Needs Planners.)

For additional information concerning special needs trusts and disability planning, visit:

NJ Special Needs Trusts and Disability Planning