The end of the year is approaching and the holidays are in full swing, a time when many people are getting ready to make gifts to their family members. Not only is this a great way to show love and support to relatives, but it makes tax planning sense. Current federal tax law allows taxpayers to gift amounts up to $15,000 per recipient per year without it counting against their lifetime gift exemption of $11.4 million (an amount that will revert to $5.49 million in 2026 unless Congress changes the law before then).
However, special considerations apply if your family member is an individual with special needs. Gifts of cash or certain types of gift cards can compromise your family member’s eligibility for government benefits. Even if your loved one does not receive benefits like SSI or Medicaid, direct gifts of cash to a person with special needs may not be advisable, especially if the recipient is not adept at handling money. In many cases, the best way to provide monetary assistance to your loved one is through contributions to a special needs trust, or SNT.
Special needs trusts are important tools that help families protect their special needs relative from losing government benefits like Medicaid and Supplemental Security Income (SSI). Almost anyone can establish an SNT for a loved one, and in most cases, a trust established by one family member can receive funds from other family members. As long as it is properly established, an SNT can hold unlimited funds, and the trustee can use her discretion to direct the payments for the care and support of the special needs individual who is the beneficiary of the trust.
Note, however, that making a gift to an SNT does not automatically qualify for the federal rule that allows you to make a gift of up to $15,000 (per year, per recipient) without it counting towards your lifetime gift exemption. If you want to take advantage of that part of the law, consider gifting to a special-needs family member through her ABLE account, if she has one. Like SNTs, ABLE accounts allow families to set money aside for their special-needs relative while also protecting her eligibility for government benefits. Yet ABLE accounts have restrictions that don’t apply to SNTs. For example, total contributions to the accounts are generally capped at $15,000 per year, and the account’s value must stay below $100,000 or penalties regarding benefits will kick in.
If your family member already has a properly established SNT, making a gift to the trust is easy. Simply make your check payable to the exact name of the trust (check with your special needs planner or consult the trust documents for the precise wording). If your loved one does not have a trust, what better gift to give than the creation of the trust itself? Although trusts are not simple documents, there is still time to put one into place before the end of the year. You have given a gift that will safely set aside funds for the benefit of your loved one for years to come while also providing an easy way for others to make contributions. And remember that in most cases once one family member has established the trust, others can contribute to it without having to set one up themselves.
A trust established with your own money, with the special needs family member as beneficiary, is known as a third-party SNT. In this case, the trust, not the special needs beneficiary, owns the property that you put into it. As long as the beneficiary never receives cash directly from the trust, his eligibility for government benefits will not be compromised. The funds from the trust can be used for services and programs that government benefits don’t pay for but that enhance the loved one’s quality of life, such as transportation, classes, hobbies, and vacations. You can also contribute to a first-party trust (in which the assets are the beneficiary’s) if that is what has been established for your loved one. In that case, the contributions to the trust from others would still not affect the receipt of public benefits, although the trust assets would be subject to Medicaid payback upon the beneficiary’s death, unlike those in a third-party trust.
The end of the year can be a hectic time, but it is also a wonderful season of giving. If you are thinking about helping a special needs family member, take the time to speak with your special needs planner first. In most cases, giving your gift in trust—or establishing a third-party trust in the first place—will make the gift even more useful, and for years to come.
