Grandparents want to provide their children and grandchildren with the best. They often do this by giving gifts while they are alive. Some grandparents are able to leave their grandchildren money after their death. Such grandparents often want to do something for their special needs grandchild. They want their grandchild with special needs to be able to enjoy a good quality of life. For this to occur, additional assets or assistance is needed. Grandparents are discouraged from gifting assets for their grandchild with special needs because they are sometimes told that it may cause the child to lose government benefits. The grandparents are sent mixed signals on this subject and are often confused as to what to do or not to do.
Grandparents can leave money to their grand-child(ren) with special needs, but there are very precise ways to go about it.
Money must be left in a certain way so that government benefits are not lost. Assets exceeding $2,000 will cause the loss of government benefits for the child with special needs.
Money should be left to a Special Needs Trust, not directly to the grandchild. The Special Needs Trust was developed to manage resources while at the same time maintaining the grandchild’s eligibility for government benefits. A trustee, on behalf of the person with special needs, manages the money in the trust. The trustee has absolute discretion over the money and decides how the money is to be used for the benefit of the special needs person. The money must be used for supplemental purposes only. Supplemental purposes add to benefits (and to the quality of life) that are already provided by the government through Supplementary Security Income (SSI), Medicaid or Medicare. The money must not replace or succeed the government benefits. The Special Needs Trust assets will not count towards the $2,000 SSI limits for an individual if structured properly by a knowledgeable special needs attorney.
Do’s and Don’ts
Do:
- Do make provisions for your grandchildren with special needs. But leave this money to the child’s Special Needs Trust. This is the only way to leave money to the grandchild without risking the loss of government benefits.
- Do plan with others. Coordinate all planning with the grandchild’s parents or other relatives. Be sure to notify the parents when planning for the grandchild.
- Do leave life insurance, annuities, and retirement accounts* to the child’s Special Needs Trust. The Special Needs Trust can be named as the beneficiary. When the insured or annuitant dies, the death payment is made to the Special Needs Trust. These funds can then be used in caring for the grandchild with special needs.
- Do confer with qualified legal and financial professionals specializing in special needs estate planning.
*Trusts must meet certain special rules to serve as designated beneficiaries of IRAs or retirement plans. Properly drafted trusts can preserve the tax deferral of IRAs and retirement plans so that payments to the trust can be made over the life expectancy of the designated special needs beneficiary.
Don’t:
- Don’t disinherit your grandchild with special needs. It does not make sense, for money can now be left to a properly drawn Special Needs Trust.
- Don’t give money under UGMA or UTMA (Uniform Gift or Transfer to Minors Act) to your grandchildren with special needs. Money automatically belongs to the grandchild upon their reaching legal age. Government benefits can be lost if money is given in this way.
- Don’t leave money outright to a grandchild with special needs through a will. Money left in this way will be a countable asset of the child and may result in the loss of government benefits.
- Don’t leave money to a grandchild with special needs to a trust that was set-up poorly. Money left in an improperly drafted trust may cause the loss of government benefits.
- Don’t leave money to relatives for them to keep or hold for the grandchild with special needs. This money can be attached in a lawsuit, divorce, liability claim, or any other judgment against the relative.
2016-30046 Exp. 9/18