In an effort to preserve government benefits for a child with special needs, parents giving gifts to children will sometimes provide nothing to the child with special needs while giving substantial amounts to the child’s siblings. This planning strategy can lead to trouble, as the recent Wisconsin case of Robbins v. Foseid and Walters illustrates.
Mary Jane Foseid received funds from a legal settlement. Instead of holding onto the money,
Ms. Foseid gave $51,000 to each of her children other than her daughter Kari, who was born with significant disabilities and who had received public benefits for years, and Ms. Foseid’s youngest daughter, Kathryn. Ms. Foseid gave Kari 73 cents from the settlement and transferred approximately $102,000 to Kathryn, twice as much as her siblings received.
Seventeen years after Ms. Foseid made the gifts, one of her daughters claimed that the extra money that Kathryn received was really intended for Kari. The daughter demanded that Kathryn account for her use of the funds and manage any remaining money for Kari’s benefit. A probate court threw out the daughter’s suit and in early September the Wisconsin Court of Appeals upheld the lower court’s decision.
Many parents faced with this situation do exactly what Ms. Foseid did and simply exclude their child with special needs from lifetime gifting programs. Sometimes, parents will also give more money to their other children (like Ms. Foseid was alleged to have done here) with the hope that they will take care of the child with disabilities. These are sometimes referred to as “morally obligated” gifts. The child with the larger share is supposed to spend the funds for her sibling with a disability but is under no legal obligation to do so.
Fortunately, there is no reason to exclude a child with special needs when it comes time to make gifts. The solution is to create and fund a special needs trust. The money held by the trustees won’t affect the beneficiary’s ability to qualify for government benefits, and will be clearly set aside for her benefit with legal as well as moral obligations. (Also, Massachusetts may soon be able to create an ABLE account for gifts that are $14,000 or less.
If you are thinking of making gifts to children or other relatives or friends, and one member of the group has special needs, talk with your special needs planner prior to making the gifts. Your planner can construct a plan that includes everyone, including the person with special needs.