Legal & Planning
A Guide For Gifting To Children With Special Needs
As a special needs planning attorney, I am often asked by clients and financial planners how family members can make gifts of cash and other financial assets to a child with special needs.Don't Give A Gift!
Generally, making outright gifts to a child with special needs is never good planning because it will jeopardize the child’s eligibility for needs-based government benefits, such as Supplemental Security Income (SSI) and Medicaid. This includes annual exclusion gifting (currently, $14,000 for 2013), both in the form of outright gifts and gifts made in trust where a child has a beneficial interest. Further, establishing a Uniform Transfers to Minors Act (UTMA) account for a child is not recommended. Although the UTMA account may not be counted as part of the child’s assets while he is a minor, many problems ensue when the child reaches the age of 18 or 21 and the UTMA account becomes the child’s property.529 Accounts
If you think the child may be able to go to college, you can open a 529 Account. A 529 Plan is an education savings plan operated by a educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. Under this account, the person holding the money (i.e., the person making the gift) and not the person who might use the money to pay for higher education expenses (i.e., the child) is the owner of the account. If it turns out that the child is not able to go to college, the money can be used by another beneficiary.Special Needs Trust
A third-party supplemental needs trust (sometimes referred to as a special needs trust or SNT) is another option for family members to make gifts to a child with special needs. A supplemental needs trust is a trust that is specifically designed to hold money for a person with special needs but will preserve that person’s eligibility for needs-based government benefits. A third-party supplemental needs trust is funded with assets belonging to a person other than the beneficiary. In fact, no funds belonging to the child may be used to fund this type of trust. The person making the gift can gift cash, real estate, securities and insurance proceeds. It is important to note that gifts made by family members to these types of trusts cannot count as annual exclusions gifts for the trust beneficiary. Gifting is complex and it is essential that care be given to the gifting process to ensure the child’s eligibility of needs-based government benefits is not put in jeopardy. When considering making a gift to a child with special needs, it is important that you consult with a legal professional experienced in special needs planning. Amy C. O'Hara is an attorney with the New York law firm of Littman Krooks LLP. Her practice focuses on special needs planning, trust administration, guardianships, elder law, veterans' benefits and estate planning and administration. Amy is a member of the Special Needs Alliance. She is also a member of the New York State Bar Association. Amy graduated from the State University of New York at Buffalo Law School.
