How Can I Best Gift Money to Someone With Special Needs?
Question: “As the holidays approach, I have been asked by my parents how they can gift money to my son with autism? Can I tell them to give it to him directly or is there something specific I need to do?”
Thank you for this question. Our planners hear this question quite a bit especially from grandparents who want to help towards the financial needs of their grandchildren. Your question has wide-ranging implications for your son’s future if not done properly. The answer to your question is multi-faceted and will require more information. Here are some points to consider:
- How old was your son when he was first diagnosed? Was it before he turned age 26?
- Does your son currently receive any government benefits such as SSI (Supplemental Security Income), Medicaid, or any Medicaid waivers?
- If your son does not currently receive government benefits, do you plan on accessing them when he is eligible?
- What is the amount of the gift?
- Will this be a one-time gift or do your parents plan on making this an annual contribution?
For many individuals and families, government benefits will play a large role in providing for lifetime support and services, so it is important to keep your son’s ability to qualify intact. In order to do this, you must direct any gifts to your son in the proper way. If your son is under age 26 or was diagnosed before the age of 26, an ABLE account will be an option for you to use. In using an ABLE account, you must be careful to understand all the rules, especially the maximum annual funding limit. Please also know that your son can only have one ABLE account, which means your parents cannot open one for him and you open one for him as well.
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Another option is a Special Needs Trust. This is a unique legal tool that your parents (or others) can fund during your lifetime and your child’s lifetime. You can use multiple funding tools within the trust depending on your situation and your preference. There are also a number of items you should know about managing Special Needs Trusts before you decide on this as an option, especially how taxes work within a properly created Special Needs Trust.
A third option that grandparents (and parents) utilize is certain types of life insurance that can fund the trust with a lump sum payment in the future (through a death benefit), but also have a savings component that can be used for current needs. If designed and used properly this type of tool can have tax advantages when owned by the Special Needs Trust.
The answer to the questions I listed above will give great clarity as to the best option for the money your parents are gifting. A gift can be such a blessing, as long as it is carried out properly, but can be quite a curse if done with no forethought and no planning.
For more information on how to prepare for the future, be sure to contact a financial advisor who specializes in serving families with special needs. A Special Needs Plan is driven by their purpose of leading families to independence through an on-going multi-generational plan. A Special Needs Plan is passionate about families confidently moving forward.
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Charlotte, NC 28204
Ryan F. Platt, MBA, ChFC, ChSNC, is a registered representative of and offers securities, investment advisory, and financial planning through MML Investors Services, LLC, member of SIPC. A Special Needs Plan is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. This article is not a recommendation or an endorsement of any products.
This article was featured in Issue 82 – Finding Peace This Season