Year-end Planning Strategies for Grandparents of People With Special Needs

In our work as financial planners, we find that many grandparents want their financial plan to tax efficiently address their needs and extend support to their children and grandchildren. In honor of Grandparents’ Day on Sunday, September 7, we’re outlining some of the key planning considerations for a generational transfer of wealth within a family. Sequoia Financial’s special needs planning team is well-equipped to provide guidance in aligning grandparents’ good intentions with the unique financial challenges of supporting loved ones with special needs.

Key Financial Planning Considerations for Grandparents

1. Gifting Thoughtfully

Many grandparents wish to provide financial support to their grandchildren. In some cases, gifts are made directly to the grandchildren; in others, they are given to the parents with the intent that they be used for the child(ren)’s benefit. Before making any gifts, it’s essential to review your own financial security to ensure you’re not compromising your future needs. Sequoia advisors can help you balance your needs with your wishes for your legacy.

2. Avoiding Common Pitfalls

Two of the most frequent—and potentially costly—mistakes we see include:

• Jeopardizing eligibility for benefits: Some forms of gifting can affect whether your grandchild(ren) with disabilities will be eligible for government benefits, especially if they have special needs. In some cases, we suggest grandparents offer gifts to help fund an ABLE Account or use life insurance to provide tax-free funding of a Supplemental Needs Trust (or Special Needs Trust). Working with a knowledgeable advisor will help you make informed decisions.
• Outdated beneficiary designations: Life changes such as marriage, divorce, births, or deaths should prompt a review of your beneficiaries across retirement accounts, insurance policies, and estate plans. Doing so will ensure your estate will transfer as you intend. Make sure not to name a grandchild with special needs directly.

3. Fair Isn’t Always Equal

The principle that, what is equal is not always fair, and what is fair is not always equal is especially relevant when planning for family members with special needs. Equitable distribution doesn’t always mean an equal dollar amount for every heir.

4. Communication Is Key

Every family is unique, with its own values, priorities, and dynamics. One of the most important steps—but often overlooked—is having open and honest conversations to ensure everyone understands the intent behind your plan.

5. Thoughts on IRAs

One of the most significant changes affecting retirement accounts came with the SECURE Act, which eliminated the ability for most non-spouse beneficiaries to “stretch” inherited IRA distributions over their lifetime. Instead, funds must now be withdrawn within 10 years, creating a potentially large tax burden. This change opens up new planning opportunities for families.

• Special Needs Trusts as IRA Beneficiaries
  A grandchild with a qualifying disability may still be treated as an eligible designated beneficiary. If a properly structured Special Needs Trust is the IRA beneficiary, the trust may continue to stretch distributions over the beneficiary’s lifetime.
• Convert Traditional IRA to Roth IRA
  Converting a portion of your traditional IRA to a Roth IRA may be a smart move. Though you’ll pay taxes now on the converted amount, it can: reduce future required minimum distributions (RMDs), shift assets into an account that grows tax-free, and provide Eligible Designated Beneficiaries (EDB) with a tax-free income stream.
• Supporting Nonprofit Agencies
  Consider making a qualified charitable distribution (QCD) from your IRA to a charity that is special to your grandchild(ren). Additionally, you could establish a donor-advised fund (DAF) that can be named as beneficiary of your IRA through your estate plan. This will allow your heirs to make gifts to charities that are special to your grandchild(ren). (Learn more about QCDs and DAFs here.)

Next Steps: Don’t Wait Until It’s Too Late

If you desire to make a year-end gift, execute a Roth IRA conversion, or make changes to your estate plan to benefit your grandchild(ren) with special needs, now is the time to act to allow enough time to evaluate your options. Contact us today to schedule a conversation about how these strategies could help you extend support to your loved ones and meaningfully define your legacy of love.