Financial Gifts for Children with Special Needs

Financial Gifts for Children with Special Needs

It is a grandparent’s right to spoil the grandchildren.

But if your grandchildren have special needs, giving them large financial gifts may have unintended consequences. 

Many grandparents of children with special needs are worried about their grandchild’s ability to support him or herself and want to help out in any way they can. But Michael Smith, co-founder of Savannah-based Smith Barid LLC, which focuses on special needs planning, warns that some financial gifts may actually hinder one’s grandchild from getting the support he needs.

“Grandparents with the absolute best of intentions sometimes make it impossible for a child with special needs to receive the medical care they need,” Smith said. “The key to really helping your grandchild is to know how special needs planning works and find out the kind of assistance that you can give without penalizing your grandchild.”

Smith explained that children with special needs often receive financial assistance or government funded insurance to pay for social workers, therapists, and other aides that are not available through the school district or through the parents’ health insurance. To qualify for these benefits, the children are limited as to what they can own or earn.

If a grandparent were to give the grandchild money or open an account in his or her name, it could put the grandchild’s benefits at risk.

“Even an account which is not available to the grandchild until she is 18 or 21 can be damaging,” said Richard Barid, co-founder of Smith Barid LLC. “Some government programs will disregard these accounts while the recipient is a minor, but as soon as the account is in her name, it can create significant complications rather than help the grandchild.”

For example, Barid said, a Uniform Transfers to Minors Act (UTMA) account becomes the recipient’s property at 18 or 21 even if the recipient (because of a disability) is not capable of managing the money. The receipt of that money could put government benefit programs such as Supplemental Security Income (SSI) or Medicaid at risk. Medicaid may be the only health insurance for which a child with special needs can qualify.

The money could be transferred to a supplemental/special needs trust account, but because of court costs and legal fees the beneficiary may end up with quite a bit less than the intended amount.  

Smith said naming the grandchild as a beneficiary on a life insurance policy, an annuity, a retirement account or savings bonds would have similar consequences.

“Whether the bond has the grandchild’s name, the grandchild’s and parent’s name or the parent’s name payable on death to the grandchild, at some point it will count against the grandchild’s eligibility for government assistance,” Smith said. “That will leave your grandchild with a legal battle he might not be capable of handling.”

Even if a grandparent has the financial means to make government assistance unnecessary, Barid said giving money directly to a child with special needs may be ill advised.

“We never know how any child is going to handle money, but there are other considerations when a child has special needs,” Barid said. “She might be capable of many things including going to school or work, but when it comes to money she might spend it irresponsibly or worst of all might not know if someone is using her for her money.”

On the bright side, there are ways for grandparents to give financial gifts to their grandchildren with special needs without hurting their chances at government assistance, Smith said.

“For smaller gifts, probably the best way is to give the money directly to the parents,” Smith said. “As long as it is deposited into an account in their name using their social security numbers it won’t affect the grandchild’s benefits.”

Another option is to leave the grandchild money in a supplemental/special needs trust. These trusts are created to supplement the income of a child with special needs without affecting government benefit program eligibility. The trust can pay for many life-enhancing benefits including transportation, hobbies, recreation and athletics.

“You can name the trust as a beneficiary of your life insurance policy or retirement account,” Barid said. “That way you can leave an inheritance to your grandchild without adversely affecting his benefits.”

Finally, if you think your grandchild who has special needs may pursue higher education, you could open a 529 Account for the grandchild. These accounts are considered owned by the originator of the account, and not the beneficiary, and, therefore, would not interfere with the grandchild’s government assistance. If the child with special needs is not able to go to school, the money could be used for another grandchild.

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Written by: Smith Barid, LLC See other articles by Smith Barid, LLC
About the Author:

Smith Barid, LLC is a Savannah-based law firm dedicated to long-term care planning to ensure that their clients or their clients’ families are provided for in the case of a death or disability. Smith Barid was founded in 2006 by Michael Smith and Richard Barid.

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