Frequently Asked
Questions
If you don't find the
answer to your question, please e-mail
your question to us and we will be glad to respond.
I already have a
trust for my child who has a disability and want to keep it. May I also
set up a Life Opportunities Trust?
Yes. You may want to set
up a Life Opportunities Trust in addition to other existing trusts in
order to gain access to the Trust Fund Partners’ expertise and/or access
the state matching funds.
May I move funds
from an existing private trust into the Life Opportunities Trust?
Potentially you may be
able to transfer funds from an existing trust into the Life Opportunities
Trust. You will need to consult an attorney to review your specific
situation
If I am able to
transfer funds from an existing account, will those funds qualify for
state matching dollars?
Yes. All funds,
regardless of source, may be matched if those funds meet state matching
requirements outlined in this booklet, if state matching funds are
available.
I already have a
trust for my child who has a disability, and another child is serving as
trustee. How is the Life Opportunities Trust better?
The Life Opportunities
Trust, managed by reliable Trust Fund Partners, provides continuity and
fund oversight throughout the lifetime of the beneficiary. This trust does
not depend on an individual, such as another child acting as trustee, to
manage and adjust investments over time or stay current on federal and
state regulations. The Life Opportunities Trust takes care of the
day-to-day management so you don’t have to. Yet family members may still
be actively involved in helping beneficiaries use funds for supplemental
services.
What would it cost
to set up a special needs trust on my own?
For an exact answer, you
will need to ask an attorney how much he/she will charge. Based on
comparable trusts and associated expenses, a private special needs trust
may cost between $1,000 and $5,000 to set up, and ongoing management fees
to operate.
Back
to top
What happens if a
beneficiary of a
Trust
I becomes ineligible by moving out of Washington; or by no longer
meeting the state definition of developmental disability in
RCW 71A.10.020(3)?
If
the beneficiary becomes ineligible, the Primary Representative may elect
one of the following options, subject to final approval by the Governing
Board:
1)
The balance of the beneficiary’s individual trust account will be
placed in another existing special needs trust established for the
beneficiary. Any costs related to the transfer will be charged to the
beneficiary’s individual trust account.
2)
The individual trust account will remain open, and the account will
be assessed fees at a level that will support all account maintenance
costs. The beneficiary will no longer be eligible for state matching funds
as of the ineligible date.
3A)
If ineligible by moving, the beneficiary’s individual trust
account will be terminated and distributed as if the beneficiary died.
3B)
If ineligible by DD
definition, the Trust Manager will direct distributions to or for the
benefit of the beneficiary.
The
Primary Representative is required to notify the Trust Manager if the
beneficiary moves out of Washington or no longer meets the state
definition of developmental disability.
What happens if a
beneficiary of a Trust II becomes ineligible to participate in the program
by moving out of Washington State; or no longer meets the state definition
of developmental disability?
If the beneficiary becomes ineligible due to moving
out of state, the Primary Representative may elect one of the following
options, subject to final approval by the Governing Board;
#1, #2 & #3 Same as Trust I
If the beneficiary becomes ineligible due to no
longer meeting the state definition of development disability and there
are assets remaining in the individual trust account, the state is
entitled to recover dollar for dollar up to the total medical assistance
paid on behalf of the beneficiary under the State’s Medicaid Plan.
If after the state recovery of funds, there are
remaining assets, the Primary Representative may elect one of the
following options, subject to final approval of the Governing Board;
#1 & #2 Same as Trust I
#3 The Trust Manager shall make or direct
distributions to or for the benefit of the beneficiary as requested by the
Primary Representative.
Back to
top
How may I access funds for supplemental
services or supports?
Written requests for disbursements may be sent to the
Trust Manager for review. See page 5 for a list of common uses for
disbursements.
Who authorizes disbursements?
The Trust Manager will review all disbursement
requests from people authorized in the Joinder Agreement. Only the
Governing Board and/or Trust Manager may authorize disbursements. In the
event of disbursement denial, the Trust Manager will provide a written
explanation for the denial.
May I change the Disposition Plan?
Once an individual trust account is funded, the
primary donor cannot amend the Joinder Agreement to change the Disposition
Plan. A change may be made only by a court order or other dispute
resolution mechanism.
May I change the list of people authorized to
request disbursements?
Yes. You may change the list of people authorized to
request disbursements at any time. Send written requests to the Arc of
Washington State, c/o Trust Fund.
May I change how much I invest in the plan?
Yes. You may invest in the plan in whatever way best
meets your needs. In some months you may have additional money to invest.
However, if investments fall below the minimum equivalent of $25 per
month, state matching funds may be unavailable.
May I change the beneficiary?
No. Once a fund is established for an individual
beneficiary that may not be changed.
Back to
top
How many accounts
for a single beneficiary may receive state matching funds?
Only one individual trust
account for a single beneficiary may qualify to receive state matching
funds. However, additional individual trust accounts may be established
for the same beneficiary.
How does an
individual trust account qualify for state matching funds?
All accounts will
initially receive matching funds up to established limits, but
beneficiaries may not access those matched funds until the account has
become vested. Vesting requires that an account maintain active
participation or rather receive the equivalent of $25 monthly investments
for three years.
What happens when
an individual trust account becomes inactive?
When an individual trust
account becomes inactive, it is no longer qualified to receive state
matching money and will be removed from the list of accounts assigned to
access state matching funds. The primary representative will be notified
prior to the list removal.
Back
to top
The
following is an abbreviated summary of certain federal tax matters. Individual
tax results may vary. Consult a tax advisor for specific implications of
your participation in the trust. This summary is not intended to provide individual tax advice
and is subject to the terms of the Master Trust Document and Joinder
Agreement. If the individual trust account will at any time contain the
beneficiary’s own funds, refer to Tax Questions for Trust II
(Self-Settled Trusts).
Is the
beneficiary’s individual trust account subject to federal income tax?
Each individual trust
account is subject to federal income tax on its investment earnings (such
as interest and dividends). If those earnings are used on behalf of the
beneficiary during the calendar year, federal income tax does not apply.
Who prepares the
tax forms and pays federal income tax owed?
The Developmental
Disabilities Endowment Fund will prepare and file an IRS Form 1041 for
each individual trust account. The fund will issue a check from the
individual trust account for any tax owed. A copy of the IRS Form 1041
will be mailed to the primary representative.
Once income tax has been
paid on earnings, tax does not have to be paid again when funds are spent
on behalf of the beneficiary.
What are the tax
implications for the primary donor or person establishing an individual
trust account?
Income Tax:
The donor is not required to pay federal income tax on earnings generated
by the individual trust account.
Gift Tax:
Contributions to an individual trust account will be considered a gift for
federal gift tax purposes. The law requires that individuals file a gift
tax return (Form 709) for each year that they put money into the
individual trust account. Even though the law requires that a gift tax
return be filed, there may be no gift taxes owed. For more information,
refer to the IRS rules regarding gift taxes.
Tax Deductions: A
contribution to an individual trust account is not deductible as a
charitable contribution because the funds directly benefit a specific
individual.
What are the tax
implications for the beneficiary of an individual trust account?
Income Tax:
When the individual trust account’s earnings are disbursed on behalf of
the beneficiary (and not retained in the account), the beneficiary must
claim the amount of those disbursements as taxable income. If the
beneficiary owes income tax, he or she will be required to prepare and
file an income tax return, as well as pay any income tax due. The
Developmental Disabilities Endowment Fund (dba Life Opportunities Trust)
will provide the primary representative with a completed IRS Schedule K-1
(Form 1041) showing the investment earnings to be included in the
beneficiary’s income tax calculation.
(If income tax is paid on
the investment earnings while in the individual trust account, tax does
not have to be paid when funds are spent on behalf of the beneficiary.)
Gift Tax: The
beneficiary will not owe gift tax on contributions place in an individual
trust account.
Will the
beneficiary owe income taxes on state matching contributions?
A beneficiary should not
have to pay income tax on the matching contributions made by the state.
Back
to top
The
following is an abbreviated summary of certain federal tax matters. Individual
tax results may vary. Consult a tax advisor for specific implications of
your participation in the trust. This summary is not intended to provide individual tax advice
and is subject to the terms of the Master Trust Document and Joinder
Agreement. If the individual trust account does not contain any of the
beneficiary’s own funds, refer to Tax Questions for Trust I (Third
Party Trusts).
What are the tax
implications for a person who establishes an individual trust account?
Income Tax:
Because the beneficiary is the donor of a self-settled trust, the
beneficiary will be required to pay federal income tax on earnings
generated by the individual trust account.
Gift Tax:
Because the beneficiary is the donor of a self-settled trust, the
beneficiary will not be subject to gift tax on contributions to the
beneficiary’s individual trust account.
Tax Deductions:
A contribution to an individual trust account is not deductible as a
charitable contribution because the funds directly benefit a specific
individual.
Who prepares the
tax forms and pays federal income tax owed?
If required, the
beneficiary will be responsible for preparing and filing a federal income
tax return. The Developmental Disabilities Endowment Fund (dba Life
Opportunities Trust) will prepare an IRS Form 1041 for the individual
trust account and send it to the primary representative.
(The primary representative may be the beneficiary.) This form will
document all of the investment earnings that may be required to report on
the beneficiary’s federal income tax return. Upon request, the Trust
Manager will make a disbursement from the individual trust account to pay
for taxes attributable to the account. Once income tax has been paid on
the earnings, tax does not have to be paid when funds are used on behalf
of the beneficiary.
Is the
beneficiary’s individual trust account subject to federal income tax?
No, the beneficiary’s
individual trust account is not subject to federal income tax on its
investment earnings because the beneficiary will be required to pay any
federal income tax attributable to this account.
What is the
beneficiary’s responsibility for paying tax related to the individual
trust account?
Income Tax:
If the beneficiary owes income tax, he or she will be required to prepare
and file an income tax return, as well as pay any income tax due. The
Developmental Disabilities Endowment Fund (dba Life Opportunities Trust)
will provide the primary representative with a completed IRS Schedule K-1
(Form 1041) showing the investment earnings to be included in the
beneficiary’s income tax calculation. Upon request, the Trust Manager
will make a disbursement from the individual trust account to pay for
taxes attributable to the account.
Gift Tax: The
beneficiary will not owe gift tax on contributions place in an individual
trust account.
Will the
beneficiary owe income taxes on state matching contributions?
A beneficiary should not
have to pay income tax on the matching contributions. Made by the state.
Back
to top
The funds are invested
conservatively at the direction of the Endowment Trust Fund Governing
Board. Information about the allocation of the Fund's assets and
current returns are at the State Investment Board's
website.
|
