Key Tips for Giving Gifts to Individuals with Special Needs

The tax code is extremely complex and it is one of the primary reasons that nobody likes tax season. One common point of confusion for individuals all over the country is the gift tax. Although many people are familiar with the concept of the magic number being $14,000, they are not familiar with the consequences of giving more than this amount.

When you are dealing with a special needs beneficiary and making a gift, $14,000 can go very quickly as loved ones in this situation are frequently dealing with medical, housing and other expenses. With a little bit of clarification over the gift tax, however, you can help to provide for your special needs beneficiaries in a meaningful way.

The IRS stipulates, for example, that paying medical expenses or tuition doesn’t count towards the $14,000 annual exclusion amount or towards the annual lifetime taxable gift allowance. For the majority of donors, while you may need to file an additional return at tax time, there is not a major limit placed on the gifts made to assets of a particular individual. There are caveats, however, when you are thinking about making a gift to a special needs beneficiary.

Certain special needs trusts could be drafted to include language that makes those gifts qualified towards the annual $14,000 exclusion amount. But this is not always the case. If you use a revocable special needs trust, and the same person serves as the donor and the trust maker, this trust and the assets inside do not count as a gift of assets at all. It is important to discuss your options with a knowledgeable New Jersey estate planning attorney when you are attempting to make plans to support a beneficiary with special needs.