Recent Case Spotlights Problem of Excluding People with Special Needs From Gifting Plans

CashIn 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 a recent Wisconsin case highlights.

Mary Jane Foseid received funds from a legal settlement.  Instead of holding onto the money, Ms. Foseid decided to give $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 Walters.  Ms. Foseid gave Kari 73 cents from the settlement but transferred approximately $102,000 to Ms. Walters, twice as much as her siblings received.  A year after making these distributions, Ms. Foseid created an estate plan with a special needs trust for Kari, which was funded after Ms. Foseid died in 2003.

Seventeen years after Ms. Foseid made the gifts, one of her daughters claimed that the extra money that Ms. Walters received was really intended for Kari.  The daughter demanded that Ms. Walters 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.

While it is impossible to know what was going through Ms. Foseid's mind when she didn't give Kari a $51,000 gift like the rest of her children, it is not hard to imagine that she was worried that giving money to Kari would jeopardize Kari’s receipt of government benefits.  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.

Fortunately, there is no reason to exclude a child with special needs when it comes time to make gifts.  The solution is to create a special needs trust and fund it with the gift while the donor is still alive.  There is no need to wait (like Ms. Foseid did here) to fully fund the trust at death.  So long as you work with a qualified special needs planner to devise an appropriate trust, the money held by the trustees won't affect the beneficiary's ability to qualify for government benefits, and she will be able to enjoy the benefit of the funds sooner, like her other siblings.

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.

To read the court’s decision in the case, Robbins v. Foseid, click here.

Article Last Modified: 09/25/2015