Submitted by Jim Thompson
Grandparents want the best for their grandchildren and often give gifts while alive or make provisions for their loved ones for after they are deceased. Grandparents who are in a position to leave money or assets often want to do something for their grandchild(ren). They often worry that their loved one may need additional assets or assistance to lead a quality life. However, grandparents are sometimes told not to leave their grandchild(ren) with special needs anything because those grandchild(ren) may lose government benefits.
Grandparents can leave money to their grandchild(ren). There are very special ways to do it! Money has to be left in such a way so that government benefits are not lost.
Money should not be left to the grandchild directly but should be left to a special needs trust. The trust is maintained by a trustee on behalf of the person with special needs. The money must be used for supplemental purposes only. It should only supplement or add to benefits (food, shelter, or clothing) that the government provides through Supplemental Security Income (SSI). It must not supplant or replace government benefits. If properly structured, the special needs trust assets will not count towards the $2,000 SSI asset limit for an individual.
Here is a brief summary of some dos and don’ts when planning:
Dos:
- Consult with trained financial, legal and tax professionals with expertise in special needs estate planning.
- Make provisions for your grandchild(ren) with special needs. Leave money to their special needs trust.
- Coordinate all planning with your grandchild(ren)’s caregivers and other relatives.
- Leave life insurance and annuity death benefits to the individual’s special needs trust. The special needs trust can be named as the policy beneficiary, the death benefit is paid to the special needs trust which then has a lump sum of money to be used in caring for the grandchild(ren).
Don’ts:
- Don’t disinherit your grandchild(ren) who have a disability. Money can be left to a special needs trust.
- Don’t give money to your grandchild(ren) with a disability under UGMA or UTMA (Uniform Gift or Transfer To Minors Act). Money automatically belongs to the child at legal age.
- Don’t leave money through a will. Money left will be a countable asset of the individual.
- Don’t leave money to a poorly set up trust. Money left in an improperly drafted trust can result in the loss of government benefits.
- Don’t leave money to relatives to “keep or hold” for the individual with special needs.
Due to the complexity of federal and state laws, you may require a specially trained professional who can work with your other advisors to help you plan. For more information contact Jim Thompson CFP, ChFC, ChSNC with Seven Oaks Financial at 309-263-5092 office or 217-417-5228 cell.