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The Montana Estate Lawyer

Monday, April 9, 2012

Gifting to a Minor with Special Needs

We previously have posted blog entries about special needs planning and about gifting.  Gifting money to a child with special needs can be a powerful tool for a parent or grandparent to provide support for the special needs child.  However, caution must be used when making such gifts when the special needs individual is a minor.  The parent or grandparent might think that a safe way to make gifts is to open an account under the Uniform Transfers to Minors Act (UTMA), but these accounts may create significant complications in the future.

The UTMA account becomes the property of the special needs child when he or she reaches age 18 or 21.  This occurs automatically, regardless of whether he or she is participating in a means tested government program and even if he or she is not capable, because of disability, of managing that money.  In this instance the special needs individual will likely lose his or her Supplemental Security Income (SSI), Medicaid and other government programs as of that date.  In many cases, a lawyer will need to be hired to step in and obtain court permission to put the money in a different type of account, usually a first-party special needs trust, which under the rules must provide that any funds remaining in that trust at the time of the death of the special needs individual would have to first reimburse the government for any services it has paid on his or her account to the Medicaid program before they pass to anyone else.  The better alternative would be to have the parent or grandparent first set up a third-party special needs trust, which does not require a payback provision to the Medicaid program, and then make gifts to that trust.

For a discussion of first-party and third-party special needs trusts, please see my previous blog post, "Planning with Special Needs Trusts."

Jon


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