SECURE Act 2.0 Includes New Provision For Special Needs Trusts

SECURE Act 2.0 Includes New Provision For Special Needs Trusts

March 12, 2024

Experts estimate there are more than 44 million people with disabilities in the U.S., representing 13.4% of the population.1

Many parents of children with disabilities choose to establish a special needs trust. The passage of the SECURE Act in 2019 added complexity to how these types of trusts could be set up, resulting in some limitations regarding how they could be used as long-term financial solutions. However, the SECURE 2.0 Act included a modification to help rectify this situation.


What are Special Needs Trusts?

First let’s start with some basics. A special needs trust is a legal arrangement that allows a disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income, or Medicaid.A grantor, such as a parent or guardian, creates a special needs trust and appoints a trustee to oversee the disbursement of assets from the trust to the disabled beneficiary. The trust is designed to supplement the beneficiary’s government benefits but not replace them. This special type of trust seeks to manage the risk that the special needs person will lose their eligibility for government programs that require assets to remain below a certain limit.5

It’s important to remember that using a trust involves a complex set of tax rules and regulations. When we help clients who are interested in a trust, we work with professionals who are familiar with the emerging rules and regulations.

The SECURE Act Changes Rules for Disabled IRA Beneficiaries

At the end of 2019, the original SECURE Act changed several rules regarding inherited IRAs.  Essentially removing the “stretch” and forcing non-spouse IRA beneficiaries to distribute funds within a 10-year period.  However, the new rules also included exceptions for beneficiaries with a disability, allowing them to withdraw funds over their life expectancies. 

Spreading withdrawals over many years will likely present tax benefits, both by postponing tax payments and potentially keeping beneficiaries in a lower tax bracket.

Prior to the SECURE Act, it was typically not advisable to name your special needs beneficiary on your IRA or 401(k) plan.  Often you would name other beneficiaries for retirement accounts and non-retirement assets for special needs planning. Considering the new rules, this advice may no longer apply.

SECURE 2.0

Although much of the SECURE ACT was well received, some unintended consequences and missed opportunities needed addressing. The SECURE 2.0 Act was signed on December 29, 2022, and included 92 new, modified, or clarified provisions to the original. One of these changes pertained to special needs trusts.3

Charities Are now Allowed to be Remaindermen of a Special Needs Trust

SECURE 2.0 resolved an issue with the SECURE Act and clarified that, in the case of a special needs trust established for a beneficiary with a disability, the trust may provide for a charitable organization as the remaining beneficiary without triggering the truncated payout period. This change offered a welcome, though limited, enhancement to special needs trusts designed to receive retirement benefits and qualify as see-through trusts under the SECURE Act provision for applicable multi-beneficiary trusts (AMBTs).3,4

Although this provision allowed most charities to be named as remainder beneficiaries after the death of a disabled or chronically ill beneficiary—without disqualifying that initial disabled beneficiary from stretching the IRA over their lifetime—grantors must be careful to avoid naming disqualified charities such as private foundations as the remainder beneficiary.4

We Can Help

Special Needs Planning is complex. It’s easy to understand if changes in government regulations or tax programs get overlooked: however, people caring for others with disabilities should pay attention to a wide range of considerations to ensure the plans they have in place will be effective.

As financial professionals, we have resources that highlight new rules and regulations so we can help our clients take advantage of emerging opportunities. It’s important to remember that using a special needs trust involves a complex set of tax rules and regulations.  It is critical to work with tax and legal professionals who specialize in this field.  If you are interested in learning more, please let us know. We are happy to explore whether this new legislation might benefit or complement some of the preparations you have already made for a family member with a disability.


  1. DisabilityCompendium.org, 2021
    https://disabilitycompendium.org/sites/default/files/user-uploads/Events/2022ReleaseYear/Annual%20Report%20---%202021%20---%20WEB.pdf

  2. Kiplinger.com, April 21, 2022
    https://www.kiplinger.com/retirement/inheritance/604567/if-you-inherited-an-ira-recently-you-could-be-in-for-a-mess#:~:text=The%20SECURE%20Act%20made%20major%20changes%20by%20requiring,of%20beneficiaries%2C%20such%20as%20spouses%20and%20minor%20children

  3. Business.BOFA.com, December 2023
    https://business.bofa.com/content/dam/flagship/workplace-benefits/id20_0905/documents/understanding-SECURE-act-2022.pdf 
  1. UltimateEstatePlanner.com, August 1, 2023 
    https://ultimateestateplanner.com/2023/08/01/secure-2-0-act-enhances-special-needs-see-through-trust-planning/ 
  1. Investopedia.com, July 12, 2022
    https://www.investopedia.com/terms/s/special-needs-trust.asp