Grantor Trust vs Qualified Disability Trust

Forum|Forum|5 months ago
March 27, 2026
4 replies
166 views

I am trustee for a special needs trust, and have had it prepared by a CPA firm for the past few years. I'm questioning whether or not it should be filed as a Grantor type trust or a Qualified Disability Trust. It's an irrevocable trust, was funded solely by assets owned by the beneficiary, and was set up as a first party special needs trust. Any thoughts on which type of trust it should be for tax purposes, since could potentially be a substantial difference between the two. I've been looking online and have found conflicting info.

M-MTax

Level 15

You should read through the article at the link below:

https://www.specialneedsalliance.org/wp-content/uploads/2016/04/Qualified-Disability-Trust.pdf

Note that a QDT is defined by statute and the beneficiary(ies) must be getting SS benefits.

MAK333Author

Level 2

Thank you for your response. I read the link you sent, and have also read several other articles from the Special Needs Alliance. Some of those articles are what has led me to think that this trust should possibly be a Grantor type trust for tax purposes, rather than a QDT as previously filed, even though it was set up as a special needs trust. I have tax prep background, so prepared the return myself last year according to the way the CPA firm had prepared it in the past - to avoid the expense - but the more I read, the more I'm wondering if it's been done correctly. And it seems like if it were a grantor type trust it would be more beneficial to pass through the income to the beneficiary since the standard deduction/tax rate would be better than the QDT exemption/tax rate. Before I file this year, I'd really like to be sure that we're filing it correctly. And the beneficiary does collect SSDI benefits, she was formerly on SSI when this trust was set up. Thanks in advance for any further thoughts since this is pretty complicated.

M-MTax

Level 15

I'm not sure this is the case because I don't know all of the facts but a QDT must be funded by a third-party (not a grantor trust) who is under 65 when funded, so you might be disqualified right there.

The SNT should protect the SSI/SSDI limits so the trust will accomplish that purpose and the beneficiary will have a higher standard deduction for pass-through income anyway.