Yes, Yes, and Yes. IRS generally is referring to distributions of cash when referring to distributions.
As far as a Special Needs Trust, it is RARELY a good idea to distribute cash to the beneficiaries because these trusts are usually formed to assist the Special Needs Individuals without effecting State or Federal Assistance they are receiving. Distributing Cash can affect those Federal and State Programs.
Generally, funds from the special needs trust should cover items that are not, or cannot be covered by other Federal and State Programs they might be eligible for, or are already receiving. Here is a quick list of some of the things that should generally NOT be done with the money from the Trust without consulting an attorney:
- Cash given directly to the beneficiary for any purpose
- Food or groceries
- Restaurant meals (except if given as an occasional gift)
- Rent or mortgage payments
- Property taxes
- Homeowners or condo association dues
- Homeowners insurance if the insurance is a mortgage requirement
- Utilities such as electricity, gas, and water
- Utilities hookup or connection charges
Yes, as a trustee, you need to keep receipts and good bookkeeping records of all expenses, how they were used, etc.
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