Book a consultation
Send us a message
a pair of little hands ontop of a pair of adult hands holding a heart made out of clay

Poorly planned gifts from grandparents can put special needs kids in financial jeopardy

by Kelly Gicale | Contributor
July 2, 2022

For the grandparents of a child with special needs, it can be extremely rewarding to create a plan to provide support and assistance for that child into the future.

While many grandparents who have the means to provide for their loved ones make arrangements to set aside funds or assets for their grandchildren's benefit, this can be especially useful and meaningful when a grandchild has special needs.

Although there is never any certainty when it comes to the future self-reliance or success or our loved ones, grandchildren with special needs may be especially vulnerable, as they often must rely on assistance from others, whether that's family, government services, professional support or likely a combination of all of these. When a grandparent or grandparents can help supplement their care or improve their grandchild's quality of life through financial support, they often will do whatever they can to secure a better future for that child or children.

In addition, providing for their grandchildren with special needs may also reinforce or solidify a grandparent's relationship with their own son or daughter. It shows they care not only about future generations of loved ones, but also their own children, as they are helping to ease the often-significant financial burden of raising a child with special needs.

Regardless of your reasons, it's incredibly noble and generous for a grandparent to provide for their grandchild with special needs. However, if your plans are not established in the right way, this support can end up accidentally harming your grandchild instead of uplifting them. This is because your financial assistance may jeopardize your grandchild's eligibility for government benefits they are entitled to receive. However, when you work with an experienced estate planning attorney to create a plan that addresses this concern, your support can serve as supplemental funding that will improve your grandchild's quality of life while maintaining the government benefits that cover their daily costs of living and care.

To illustrate the difference that planning can make and how this kind of scenario can play out for grandparents of children with special needs, consider the following example of George's parents.

Example: George's parents

George and Susan are a married couple with three children: Gregory, Thomas, and Andrew.

Gregory is 24 years old and has Asperger's syndrome, a developmental disorder on the autism spectrum. Gregory has a part-time job and attends adult day care when he's not working. Thomas is 16 years old and also has an autism spectrum disorder. He currently attends a special private school for children who are neuroatypical. Finally, Andrew is 15 years old. He is neurotypical and attends the local public high school.

George's parents (Gregory, Thomas, and Andrew's grandparents) want to provide financial support for their grandchildren. They decide to set aside $50,000 for each child and create what's called an UGMA account for each of them. Named for the “Uniform Gifts to Minors Act,” this kind of account allows you to set aside and invest funds for the benefit of a person under the age of majority (18 or 21, depending on the laws of your state).

The account is legally owned by the child, though the custodian controls use of funds until they become an adult. At that time, the custodian loses control, and the child receives full ownership and access to the funds in the account.

In addition to the three UGMA accounts, George's parents also provide periodic gifts to help cover Thomas' school expenses and Gregory's adult day care. They generally try to pitch in whenever they can with excess income they do not need for themselves.

George's wife, Susan, spends her time caring for their sons and transporting them to school and appointments. George works full-time to provide for their family, and he helps with Thomas and Gregory's care during his spare time. Both George and Susan are grateful that George's parents are willing to help provide financial resources for their sons, as the school and day care costs have stretched them thin.

George and Susan understand that their boys will need to qualify for residential services (group homes), Medicaid and Supplemental Security Income (SSI) in the future. In addition, they believe that Thomas will likely require 24/7 care.

Currently, neither Thomas nor Gregory qualify for Medicaid and SSI because they do not meet the requirement of having assets under the $2,000 eligibility threshold.

For Thomas, being a minor means that his parent's assets are counted when determining eligibility for government assistance like Medicaid. Because the value of George and Susan's assets (those which are counted for Medicaid purposes) is greater than $2,000, this disqualifies him from receiving Medicaid coverage and SSI benefits to pay for the cost of his care and schooling.

Looking into the future, Thomas' parents' assets will no longer count against him for Medicaid purposes when he turns 22 years of age. At that point, only assets that are owned in his name will be considered when determining if he meets the threshold amount.

For Gregory, since he is 24 years old, George and Susan's assets are not included when determining his Medicaid and SSI eligibility. So, his own countable assets must be under $2,000 in order to receive these benefits.

Regardless of the other countable assets each boy may have at the time when they need to meet the eligibility threshold, in this scenario, they both will not receive Medicaid coverage or SSI benefits because of the actions their grandparents took.

By opening UGMA accounts containing $50,000 for each of their grandchildren, George's parents inadvertently caused Thomas and George to become ineligible for this assistance. While their intentions were good, because they did not consider the unintended consequences of these gifts, the grandparents made it so that Thomas could not receive coverage for the very expensive daily care he will need in the future. This approach also caused Gregory to lose the current government benefits that he undoubtedly relies on for his adult day care and any future housing costs he may need once he can no longer live with his parents.

While gifts like these from grandparents of children with special needs are extremely generous and well-meaning, they can have disastrous implications if they are not handled correctly. As in this example, people with special needs often end up losing the government benefits they rely upon because a loved one makes a gift or leaves them an inheritance that causes them to become ineligible.

This is why it's especially important to create a plan with the help of a knowledgeable estate planning attorney. They will be prepared to assist you by providing options for supporting your grandchild or grandchildren without having your assistance mean they no longer receive government benefits.

Possible solutions

However, there are options for remedying this situation and preventing further harm to Gregory and Thomas. With the assistance of qualified legal and financial professionals, George's parents can still provide for Thomas and Gregory while ensuring that they still qualify for government benefits.

In this example, George's parents can take action to restructure their plan in such a way as to prevent benefits loss while still providing invaluable financial resources to help improve the quality of life of their grandchildren and ensure they have access to the funds they need to supplement their government assistance.

First, George's parents would be well-served to seek out an experienced estate planning attorney and financial professional, preferably those who specialize in special needs planning.

The ABLE account

The financial professional will likely recommend transferring the UGMA accounts for both Gregory and Thomas into ABLE accounts. They will be able to provide guidance on completing this process or complete the process for this transfer on George's parents' behalf.

ABLE stands for Achieving a Better Experience, and these accounts are specifically meant to assist people with special needs. They allow people with disabilities to save and invest money tax-free, helping to ease the financial strains of care without having it affect their eligibility for Medicaid and other government support.

someones hand holding a jar with coins inside and a flower shaped as a heart ontop of the jar

These accounts became available through a law passed in 2014, and there are some requirements to bear in mind if you think an ABLE account might be the best option for you to utilize for your grandchild or grandchildren with special needs.

First, it's important to know that the person with special needs is both the beneficiary and the legal owner of the account. However, as with the UGMA account, the person who establishes the ABLE account can retain control over the funds while the person with special needs is a minor (18 or 21 depending on your state's laws) or is otherwise unable to manage the account.

The person with special needs must also meet certain requirements to benefit from an ABLE account. Generally, your grandchild must be eligible for Supplemental Security Income (SSI) based on disability before the age of 26; entitled to certain disability benefits before the age of 26 (either disability insurance benefits, childhood disability benefits or disabled widow's or widower's benefits); and be certified either on their own or by their parents or guardian as meeting the criteria for disability certification before the age of 26.

Because both Gregory and Thomas are under the age of 26, they should be able to meet these requirements so that George's parents can utilize ABLE accounts for their benefit. However, it will be important for George's parents to work with George and Susan, along with an experienced attorney, to ensure that the correct certification and benefits eligibility are clearly established before each boy turns 26. The timing is especially important for Gregory, as at 24 years old he only has two years left. Otherwise, they could risk having Gregory be considered ineligible for his ABLE account once he turns 26.

With an ABLE account, you have to be careful about how you contribute the support you wish to set aside for your grandchild's benefit. This is because contributions to ABLE can unintentionally generate a gift tax that could be avoided with thoughtful planning.

In 2022, the federal gift tax threshold is $16,000. This means that any amount above $16,000 gifted to an individual, even one with special needs, will generate gift tax on the amount above this limit. This generally will need to be paid either by the individual or by their parents, if they claim him or her as a dependent.

So, George's parents will want to limit their contribution to Thomas and Gregory's ABLE accounts to the annual gift tax exemption amount. This means in 2022 they would want to transfer only $16,000 from each UGMA account to the newly created ABLE accounts.

It's helpful to know that this doesn't mean the maximum amount that can be contributed to an ABLE account each year is limited to the annual gift tax exclusion. While George's parents would be wise to contribute $16,000 at most in 2022, there are other ways to contribute to this kind of account. For example, if the beneficiary of an ABLE account is working, they might be able to make their own contributions.

This applies when the person with special needs is employed, but they or their employer do not contribute to a retirement plan. If that's the case, then the beneficiary can contribute an additional amount, up to the lesser of their gross annual income or the current individual federal poverty level (currently $12,760 in most states).

In this scenario, it means that Gregory might be able to make additional contributions to his ABLE account. With his part-time job, he could add to his grandparents' gift to save and invest even more money tax-free for his use and benefit as long as he and his employer are not contributing to a retirement plan.

As George's parents set aside $50,000 for each grandchild, you might now be wondering: What should they do with the remaining $34,000 in Gregory and Thomas' UGMA accounts? As those accounts are each above $2,000, the funds remaining in those will still cause Thomas and Gregory to be ineligible for government benefits unless further action is taken.

The supplemental benefits trust

A great option for George's parents to consider for those remaining funds is establishing two supplemental benefits trusts: one for Thomas and one for Gregory. A supplemental benefits trust is one designed to allow people with special needs to retain assets while still qualifying for Medicaid, SSI and other government assistance. This is because the funds and assets held in a supplemental benefits trust are not counted and included when determining if a beneficiary is eligible for these benefits.

Unlike an ABLE account, the funds in a supplemental benefits trust do not grow tax-free. Instead, any taxes on income and earnings on assets in the trust will be taxed to the trust. However, also unlike an ABLE account, there is generally no limit to the contributions a third party like a grandparent can make to this kind of trust. So, George's parents would be free to fund each of these supplemental benefits trusts with the remaining $34,000 for each grandson. They could choose to add more over time as well.

As with an ABLE account, distributions from a supplemental benefits trust can only be made for specific allowed purposes. In order to preserve government assistance, these distributions cannot be used to pay for food or shelter. This is because the assumption is that the beneficiary does not need government benefits to cover these costs if they can pay for them. Also, distributions should generally never be made to the beneficiary directly in cash. This is important because a cash distribution could negatively impact other assistance.

As a result, distributions from a supplemental benefits trust generally should be used to purchase things for the person with special needs. But again, this should not include anything that could be considered food or shelter. Instead, it could include toiletries, entertainment devices or other items they may wish to have. In this way, a supplemental benefits trust can provide resources that help to significantly improve the grandchild's quality of life.

Because distributions from a supplemental benefits trust can be considered income to the beneficiary if handled incorrectly, it's critical that these trusts are created and managed with the right safeguards in place. Income to the beneficiary is problematic because it will reduce their SSI, leaving the grandchildren with fewer resources as a result. Because appropriate handling of distributions can avoid this outcome, it's key to ensure things are managed correctly so that the grandchild can receive this source of support without diminishing the other assistance to which they are entitled.

Another advantage to establishing a supplemental benefits trust for Gregory and Thomas now is that George's parents can rest assured knowing that any inheritance they leave for their grandchildren with special needs will not impact their government benefits in the future. Often, parents and grandparents who fail to plan ahead inadvertently leave an inheritance to their loved one with special needs without considering its effect on their Medicaid and SSI.

In this situation, the grandchild's inheritance could disqualify them from receiving the support they've relied upon for their daily care and other needs. What tends to happen is that they must spend down the funds they received in order to re-qualify for Medicaid coverage. During that time in which they have a lapse in benefits, they could experience a break in the continuity of care or even be forced to leave their home and discontinue the services they need.


While most grandparents of special needs grandchildren would want to do whatever they can to provide for their loved ones into the future, without the proper planning, they could actually do more harm than good. However, as you can see with George's parents' example, there are simple planning strategies that a Legacy Plan Network Attorney and a financial professional can employ to help you achieve your goals for supporting your grandchildren while also preserving Medicaid, SSI, and other government benefits that they are entitled to receive.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at

Phone - 844.445.3422
Email -
25 common estate planning mistakes booklet

Don't make estate planning mistakes. Avoid common mistakes with our free guide,
"25 Common Estate Planning Mistakes"

Legacy Assurance Plan Shield Logo
Subscribe to Our Monthly Newsletter!

We won't share your email, and we make it easy to unsubscribe!