Select Page

There are some things you need to know before giving a financial gift to a loved one who has special needs.

The end of the year is approaching and the holidays are about to be in full swing. With that comes a time of gift-giving for family members. These gifts can be a way to show love and support to cherished relatives, but it can also make tax planning sense. Currently, federal tax law allows taxpayers to gift up to $15,000 per recipient per year without it counting against their lifetime gift exemption of $11.4 million.

However, if you have a loved one with special needs, then you’re probably already aware that special considerations apply…

Gifts of cash or certain types of gift cards can compromise your family member’s eligibility for government benefits.

Even if your loved one does not receive benefits like SSI or Medicaid, direct gifts of cash can be problematic if your loved one is not adept at handling money.

In many cases, and we’ve definitely talked about this topic before, the best way to provide monetary assistance to your loved one is through contributions to a special needs trust (SNT).

So, what are my options? Should I use a Special Needs Trust?

Special needs trusts are important tools that help families protect their special needs relative from losing government benefits like Medicaid and Supplemental Security Income (SSI). Almost anyone can establish a SNT for a loved one, and in most cases, a trust established by one family member can receive funds from other family members.

As long as a special needs trust is properly established, a SNT can hold unlimited funds, and the trustee can use her discretion to direct the payments for the care and support of the special needs individual who is the beneficiary of the trust.

It should be noted that making a gift to a SNT does not automatically qualify for the federal rule that allows you to make a gift up to $15,000 per year, per recipient, without it counting towards your lifetime gift exemption. If you want to take advantage of that part of the law, then you should consider gifting to your loved one through his ABLE account.

When should I consider using an ABLE account?

Like special needs trusts, ABLE accounts allow families to set money aside for their child with special needs while also protecting their eligibility for government benefits. HOWEVER, ABLE accounts have restrictions that don’t apply to SNTs.

For example, total contributions to the accounts are generally capped at $15,000 per year, and the account’s value must stay below $100,000 or penalties regarding benefits will kick in.

How will this work exactly?

If your family member already has a properly established SNT, making a gift to the trust is easy. Simply make your check payable to the exact name of the trust (check with your special needs planner or check your trust documents for exact wording).

If your loved one does not already have a trust, then the creation of a trust could be another very meaningful gift that would impact their lives for years to come. Although trusts aren’t simple documents, there is still time to put one in place before the end of the year. And remember, in most cases, once one family member establishes the trust, others can contribute to it without having to set one up themselves.

This kind of trust — one established with your own money and a special needs family member as the beneficiary — is known as a third-party SNT. In this case, the trust, not the special needs beneficiary, owns the property that you put into it. As long as the beneficiary never receives cash directly from the trust, his eligibility for government benefits will not be compromised.

The funds from the trust can be used for services and programs that government benefits don’t pay for but still greatly enhance the quality of life for those with special needs. Some of these extras include things like specialized transportation, classes, hobbies, and vacations.

The end of the year can be a hectic time, but it can also be a wonderful season of giving. If you are thinking about helping a special needs family member by making a financial gift this holiday season, be sure to take the time and speak with your special needs planner first. In most cases, giving your gift in trust — or establishing a trust — will make the gift even more useful, and could do so for years to come.

As always, we at The Bell Law Firm are more than happy to help you with any special needs planning issues you may have. If you have questions or concerns about which tool may be best for your loved one, please give us a call at 913-345-2323. We will be happy to speak with you!