Can an SNT be the Beneficiary of my Retirement Account?

November 1, 2017

When determining whether you can name a special needs trust (SNT) as the beneficiary of your retirement account and accomplish your intended result, you will quickly learn that the answer is “it depends.” It depends on the type of beneficiary designation and on tax laws regarding distribution of retirement account proceeds to trusts.


Retirement accounts most often have specifically named beneficiaries who will receive the account when the owner passes away. These accounts do not pass through your will, meaning that if you name a child with special needs as the retirement account beneficiary, he or she will receive the account proceeds directly and it will not go to his or her SNT. You must properly designate the SNT as the beneficiary for the proceeds of the account to go to the SNT on your death.


The IRS has created very specific rules for IRA distributions and for distributions of other retirement accounts that accrue tax free until distribution. Essentially, there is a required date to begin taking distributions and required minimum distribution amounts. The IRS allows the distributions to be “stretched” or spaced out over the life expectancy of a “designated” beneficiary as long as the distributions begin by December 31st of the year after the year the IRA owner dies.


Beneficiaries of certain kinds of trusts can be the “designated” beneficiaries for calculating the “stretch” of distributions if the trust is named as the IRA account beneficiary. Crucially, the IRS looks to the beneficiary with the shortest life expectancy to determine the amount of payout. If the SNT will go to your older relative if your special needs child passes away, the payout could be considerably lower than with beneficiaries with longer life expectancies.


Even more crucially, charities are considered trust beneficiaries, and charities’ life expectancies are zero according to the IRS. If you have a charity as a beneficiary of the SNT or other trust named as IRA account beneficiary if a person with special needs (the primary beneficiary) passes away, the payout will be calculated over either five years or the remainder of the IRA owner’s life expectancy at date of death. However, if the charity is a remainder beneficiary – a beneficiary who receives a payout only if all the other named beneficiaries pass away – the charity’s zero year life expectancy may not matter as long as at least one beneficiary besides the person with special needs is alive when you pass away.


Further, the SNT must be irrevocable for the stretching described above to work correctly, and the IRA manager (usually called a custodian) must receive a copy of the trust or a list of beneficiaries by September 30 of the year after the year the IRA owner dies.


As you can see from this brief, simplified explanation, leaving a retirement account like an IRA to the SNT of a person with special needs often requires the services of a knowledgeable attorney and/or tax advisor to execute effectively and with the greatest benefit to the SNT. Seek legal advice to ensure that you pass on your retirement savings to your special needs child in the way you intend.


Source:, October 2017.