Is a Special Needs Trust Considered Income?

Teen girl with special needs in a wheelchair with a fluffy coat on during fall as her mother talks to her

A special needs trust can be a valuable tool to add to your child’s long-term financial plan. There are several benefits of doing so, but one of the most valuable is the ability to receive benefits from the government for a person with special needs, even if the assets in the trust amount to more than the legal limit for government benefits.

However, there are certain situations in which the assets in the special needs trust can be considered income. Read on to learn more.

When a Special Needs Trust Can Be Considered Income

If the money within the special needs trust remains in the trust and no family members are in direct control of the trust, the funds should not be considered assets.

Conversely, any funds that are distributed from the special needs trust will be counted in the determination of your family’s annual income.


A third-party special needs trust is taxed as a pass-through entity which means that the trust must file a tax return every year reporting the income that it earned.

A first-party special needs trust is taxed as a grantor trust with respect to the beneficiary throughout their lifetime. This means that all income, deductions, as well as credits concerning the assets in the trust are reported on the beneficiary’s individual income tax return.

Our Team is Here to Help Individuals With Special Needs and Their Families

If you or your loved one has special needs, adding a special needs trust to your financial plan can make a big difference in you or your loved one’s quality of life.

Our team has helped many others in similar situations, and we want to do everything we can to help you and your family too. Don’t hesitate to reach out to our skilled team right away to learn more about your options and how we can help.

Call Legacy Enhancement Trust today at (888) 988-5503 or fill out the online contact form to learn how we may assist you!

Related Posts
  • Planning for the Future: Creating a Special Needs Trust for Your Child Read More
  • Special Needs Trusts Demystified: Breaking Down Legal Requirements and Processes Read More
  • Beyond the Basics: Creative Uses for Special Needs Trusts Read More