I am the trustee for a first party special needs trust (SNT). I'm interested in directly funding the beneficiary's ABLE (Achieving a Better Life Experience) account using the SNT. The trust language allows for distributions that will be treated as a contribution to the beneficiary's ABLE account (i.e., this is allowed in the trust).
I believe any funds contributed to the ABLE account are not considered income to the beneficiary for means-tested government benefits (see: https://www.medicaid.gov/federal-policy-guidance/downloads/smd17002.pdf). So if the trust makes an $18,000 contribution to the beneficiary's ABLE account in a single month (the annual max allowed for the ABLE account), it would not jeopardize means-tested government benefits like SSI and Medicaid.
But how is this distribution handled on the beneficiary's 1041 (i.e., the attached Grantor Trust Information Letter since it is a first-party SNT)? Is the distribution considered income that would then be taxed at the beneficiary's tax rate?
