Parents, grandparents and others wanting to benefit family members with special needs should act carefully in providing for lifetime gifts or testamentary gifts.
The primary options when it comes to planning for gifts with special needs children in Iowa include:
- Gift to Disabled child. The problem with a gift is the impact it may have on eligibility for public assistance benefits. It may even disqualify the child from getting those benefits until the funds from the gift are completely exhausted, at which time the child will need to reapply for benefits.
- Disinherit the disabled child. To avoid the issue of disqualification from public assistance, a simple route is to disinherit the special needs child altogether. There is no legal requirement that one must provide for a child under their estate plan.
- Distribute to a Another Person for Disabled Child's Benefit. Another option is to distribute the funds to someone (a sibling for example) for that person to manage and distribute the funds for the benefit of the special needs child. However, this can be risky as it the assets are exposed to the creditors of that person, ex-spouses, bankruptcy, and possibly gift taxes.
- Special Needs Trust. Distribution of the funds to a properly drafted supplemental needs trust can avoid all of issues addressed while providing for a little extra benefit and resources for the special needs child. Extreme care is necessary in preparing such a trust.
No matter the plan, you should seek the advice of experienced counsel in making the arrangements for a special needs child.