Can Grandparents Leave Retirement Assets to a Special Needs Family Member?

Traditional couples with children typically name their spouse as the primary beneficiary of their IRA and other tax-deferred accounts. The children are usually contingent beneficiaries. So, if their spouse dies first, the children receive the IRA assets equally, according to a Forbes article titled “How Grandparents Can Best Provide For A Grandchild With A Disability.”

The phrase “per stirpes” often appears on documents, meaning that if one of the adult children predeceases the parent, the adult child’s share passes to the grandchild. In simpler terms, the grandchild will inherit directly from the grandparent if the parent dies leaving children.

This is all fine unless the grandchild is a family member with special needs or becomes disabled and qualifies for government benefits. It is wise to build flexibility into estate planning documents. Disclaimers may seem unnecessary if all family members are well. However, unhappy events do occur, and a Will can be created to prepare for one of life’s just-in-case occurrences.

A disclaimer is a way to refuse an inherited IRA or other asset so it passes automatically to the next contingent beneficiary. The beneficiary form isn’t changed after death. However, the disclaimer allows a named beneficiary to step aside in favor of a contingent beneficiary. For some families, a series of disclaimers can be structured to best protect all members.

IRAs and retirement accounts are fully taxable when distributed. Under the SECURE Act, for deaths occurring after December 31, 2019, inherited IRAs must be distributed and taxes paid by heirs within 10 years of the IRA owner’s death. There are exceptions, but for heirs, income tax brackets may change drastically.

If the inherited IRA passes directly or via a disclaimer to a Special Needs Trust (SNT) for an eligible beneficiary, the disabled beneficiary may stretch distributions over their actuarial life expectancy.

For one family, the grandparent left a $500,000 IRA to a granddaughter’s SNT, giving the trust 50-plus years to grow based on her life expectancy. The granddaughter will receive taxable distributions from the trust at a far lower tax rate than her parents, and her government benefits are not at risk.

To further this concept for families with a disabled member, grandparents may consider converting some of their IRA to a Roth, and then have the Roth eventually go to the SNT. The SNT will then have the same stretch as a traditional IRA. However, qualifying distributions will be tax-free.

This strategy does not apply to a family without a special needs member. Grandparents should have a consultation with an experienced estate planning attorney to ensure that their generosity does not put family member’s government benefits at risk.

Reference: Forbes (Feb. 6, 2026) “How Grandparents Can Best Provide For A Grandchild With A Disability”