The risks of designing your own special needs plan, without the guidance of a professional, far outweigh the potential reward...Read more
As Tax Time Nears, Don't Go It Alone
If you are the trustee of a special needs trust, you've probably started receiving 1099's in the mail. One of the biggest mistakes that trustees of special needs trusts can make is getting in over their heads when it comes to taxes. Unless you are a CPA, you should never prepare an income tax return for a special needs trust. Instead, call your special needs planner to discuss what needs to be done.
There are a number of reasons why obtaining professional help with tax returns is a good idea--starting with your fiduciary duty to the beneficiary of the trust. As a trustee, you have an obligation to effectively manage the trust. Preparing a return on your own, without proper training, violates this duty. A trust tax return is not like a personal tax return, so even if you do your own taxes, it doesn't make you an expert on trust taxation. You could be liable for any mistakes that you make on a tax return, which means that you could end up paying more when you improperly draft the return than you would have if you had hired a professional in the first place.
Time is another factor to consider. Your time is valuable and is better spent focusing on trust management and working on behalf of the beneficiary. Don't get bogged down attempting to decipher the tax code -- let someone else handle it.
Finally, you, as trustee, are not personally responsible for paying the accountant. The accounting fees are a proper (and necessary) expense that the trust pays. In certain circumstances, preparation fees may even be tax deductible.
Why contact your special needs planner before your CPA? Because tax documents often clue planners into other trust issues that need to be addressed. It helps to sit down with your planner first to discuss the past year, look at the trust's income and assets, and determine if any changes need to be made or if there are proper distributions that should have been accounted for. Your planner may also be able to recommend CPAs or other tax preparers who specialize in trust accounting and who will provide the best value for the trust's dollar. On top of everything else, your special needs planner may be able to help your CPA focus on core issues that need to be addressed in the return.
The annual filing deadline (April 17 this year) is just around the corner, so don't wait. Contact your special needs planner now, well in advance of the deadline, to make sure that the process of filing your tax return starts off on the right foot.