GIFT TAX ISSUES FOR SPECIAL NEEDS TRUSTS
The federal gift tax applies to gifts made to special needs trusts as much as to any other gift. Gift tax rules are rather complicated, and you might grasp them more easily if you understand the purpose of imposing the gift tax in the first place. The purpose of imposing a gift tax, it turns out, is to prevent people from evading federal estate tax.
The federal estate tax can be imposed on your probate estate to the extent that its taxable value exceeds the estate tax exclusion that applies during the year you die ($11.4 million for people dying in 2019). Of course, the existence of an estate tax could motivate people to gift property to their heirs during their lifetime simply to avoid estate tax. The gift tax was created to close this loophole.
How the Gift Tax Works
The following principles should provide a general idea of how the gift tax works: