Special Needs Answers
What Can a Special Needs Trust Pay For?
A special needs trust is a legal document designed to help people with disabilities. It permits them to have funds that en...
Read moreWith a Special Needs Trust, What Is Principal vs. Income?
- October 2nd, 2023
Q
My daughter lives in HUD-supported housing, and her rent is 30% of her income. It appears that in 2024 distributions from SNTs will count as income, except for distributions of trust principal or when used to pay for health and medical care expenses of a minor (which she is not). How do I determine if an expense is being paid from principal or income?
A
In general, the first dollars from the trust are considered income. Once that is used up, subsequent payments are considered to come from principal. At least, that’s how it works for tax reporting. So, for instance, if a trust earns $5,000 a year in interest and dividends and disburses $10,000, the first $5,000 will be considered to be income and the next $5,000 principal.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.