Holiday Gift Planning for Loved Ones With Special Needs: How to Give Generously Without Risking Benefits

Written by: Connor Kavanaugh, Special Needs Planner

Updated December 4th, 2025

As the year winds down and the holidays approach, many families begin thinking about meaningful ways to support the people they love. For some, this includes gifting money or financial assistance. Under current federal tax law, individuals can give up to $19,000 per recipient per year (2025 amount) without reducing their lifetime gift and estate tax exemption.

However, when gifting to a loved one with a disability, extra care is essential. Well-intended gifts can unintentionally jeopardize eligibility for needs-based government benefits such as Supplemental Security Income (SSI) and Medicaid. Even for individuals not currently using public benefits, direct access to cash can create challenges, especially if money management is difficult.

Fortunately, there are safer and more strategic ways to give.

Why Direct Gifts Can Cause Problems

SSI and Medicaid have strict financial limits. A gift of cash, a check, or even certain gift cards can be counted as income or resources to the beneficiary. This can reduce or eliminate benefits, often for several months.

Even outside the benefits system, direct cash gifts may not be the best long-term solution. Many families prefer to give in ways that protect assets, promote responsible spending, and support the recipient over time rather than all at once. This is where special needs trusts and ABLE accounts become powerful tools.

Special Needs Trusts: A Flexible and Protective Gifting Solution

A properly drafted special needs trust allows family members to give money without affecting the beneficiary’s eligibility for government programs. Almost anyone can contribute to a third-party special needs trust once it is established, and the trust can hold unlimited assets.

The trustee—not the beneficiary—manages the funds and decides how to use them to improve the beneficiary’s quality of life. This can include transportation, education, hobbies, therapies, and countless supports not covered by Medicaid.

A few key reminders:

• Gifts to a special needs trust do not automatically qualify for the federal annual gift tax exclusion unless certain requirements are met.

• The trust must be correctly drafted to protect benefits.

• Once a family member establishes the trust, others can usually contribute without creating their own trust.

If your loved one already has a special needs trust, gifting is as simple as writing a check payable to the trust’s exact legal name. If no trust exists, establishing one can be one of the most meaningful gifts a family can offer—one that supports your loved one for decades to come.

ABLE Accounts: A Tax-Advantaged Option for Smaller Gifts

ABLE accounts allow individuals with disabilities to save money in a tax-advantaged way without risking SSI or Medicaid eligibility. Funds grow tax free and can be used for a wide range of disability-related expenses.

For 2025:

• The annual contribution limit is $19,000.

• Additional contributions may be allowed for beneficiaries who are employed.

• To preserve SSI eligibility, the account balance must remain below one hundred thousand dollars.

• Gifts to an ABLE account generally qualify for the annual gift tax exclusion.

ABLE accounts are an especially good option for small-to-medium gifts from multiple family members, and they allow the beneficiary to manage spending more independently if appropriate.

Third-Party vs First-Party Trusts: Understanding the Difference

Most family members contribute to a third-party special needs trust—one funded with money that never belonged to the beneficiary. These trusts are not subject to Medicaid payback when the beneficiary passes away.

Some individuals have first-party trusts funded with their own assets (for example, from an inheritance received improperly, lawsuit settlement, or accumulated savings). Family contributions to a first-party trust do not affect benefits, but the funds in the trust are subject to Medicaid payback.

Knowing which type of trust exists is important before gifting.

Giving the Gift That Lasts

The holidays often bring a desire to support those we care about most—especially loved ones with disabilities who will rely on thoughtful planning throughout their lives. With the right structure, your generosity can strengthen their financial foundation without risking essential supports.

Before making a year-end gift, take a moment to speak with your special needs planner. A contribution to a properly drafted special needs trust or an ABLE account often provides far greater long-term benefit than a direct cash gift.

Thoughtful planning now creates stability, dignity, and opportunity for years to come.