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Grandparents are some of the most caring people on the planet – in most cases they would do anything for their grandchildren. That makes them a huge problem in special needs planning. To be clear they aren’t doing anything wrong or bad – the problem is actually borne of generosity. It’s a case of doing the right thing the wrong way.
In our experience most grandparents know their grandchild with special needs will require extraordinary financial assistance throughout their life. Accordingly, they desire to help, usually by leaving money to the child as part of their estate plan. But what they don’t always do is discuss their intentions with their children, the parents of the child with special needs. And that creates an issue.
Why? Because when you are building and executing a special needs plan, financial coordination is key. Most of you know that government benefits for individuals with special needs are “means tested” – to maximize benefits the individual must minimize their asset ownership below certain thresholds. So, what happens when a grandparent leaves money directly to a grandchild via their estate? You guessed it, the child can lose the benefits. It doesn’t take a lot either; a few thousands dollars gifted to the grandchild can jeopardize millions in long-term government support.
The good news is this problem is 100% preventable. Grandparents can assist in providing for their grandchildren’s future, but it requires a conversation with their children. It might not be the most comfortable thing to discuss finances with your kids (or as an adult child, with your parents) but remember this is all for the benefit of the grandchild.
During that conversation, ask the parents if they have engaged in special needs planning. If a child is receiving government benefits, then a Special Needs Trust or 529 ABLE account is one of the best ways to gift resources without violating means-test limits. However, it still requires coordination and advanced notice before listing these entities in your estate. A properly constructed special needs plan is highly integrated in a family’s general financial plan - so large, unexpected inflows will have an impact beyond just the individual they are directed towards.
If you are the grandparent and no special needs planning has been done, ask why. In many cases a family intends to pursue planning but hasn’t done so because of time or financial constraints. As a grandparent your greatest impact might come from introducing your children to the process of planning or enabling them to plan by providing some type of support.
If you are the parent of a child with special needs, ask your parents about their estate intentions. You don’t need specific amounts, but you might be able to circumvent an inheritance that could disqualify your child for benefits by just asking the question. At the end of the day everyone is working for the benefit of the child with special needs, so increased coordination can only help the situation.
If you are a parent or grandparent and have questions about planning or would like someone to facilitate the conversation around estate planning, please get in touch. We would love to assist.
Moors & Cabot, Inc - Johnson Cotroneo Group
999 Vanderbilt Beach Rd. Suite 102
Naples FL, 34108
239-449-7982, 239-449-7992
Investment Advisory Services provided by Johnson Cotroneo Group are through Moors and Cabot, Inc., an SEC-registered investment advisor.
Brokerage services and investment products offered through affiliated broker-dealer Moors and Cabot, Inc., Member FINRA, SIPC