ABLE Accounts and Special Needs Trusts - a winning combination
What is an ABLE account?
In 2014, the Achieving a Better Life Act (also known as the ABLE Act) was passed to the relief of millions of families in the United States who have disabled children. This Act allows disabled persons to open a special account in their own name without disrupting public benefits (for example, SSI or Medicaid). Although the disabled person is the owner of an ABLE account, their parent, guardian/conservator, or agent under a durable power of attorney can help manage the account.
By using an ABLE account, your disabled child can stay below the $2,000 threshold required for many public benefits since the account does not count toward their asset limit or available resource limit. The funds placed in the account are generally not taxed and can be used for a variety of Qualified Disability Expenses, such as:
Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses, and other expenses, which are approved by the Secretary under regulations and consistent with the purposes of [Internal Revenue Code section 529A(e)(5)].
see https://elder-law.com/qualified-disabiilty-expense/
In Massachusetts, ABLE accounts are also known as Attainable Savings Plans and can be created through Fidelity Investments. You can learn more about setting up an ABLE account in Massachusetts at https://www.fidelity.com/able/attainable/overview
So what’s the catch with ABLE Accounts?
Disability must have occurred prior to age 26
$15,000 annual cap on total contributions to account (as soon as you hit that cap, no more contributions can be made to the account in the same year) - there is an exception to this if the disabled person is working and not part of an employer covered plan - see https://www.ablenrc.org/able-accounts-and-special-needs-trusts-can-be-a-winning-combination/
Must stay below $100,000 for SSI benefits (check regulations annually to see if threshold has changed)
Must stay below $400,000 for Medicaid benefits (once again, verify regulation threshold annually)
Must be used for Qualified Disability Expense to avoid income tax implications (although that’s not much of a limitation in practice - see https://elder-law.com/qualified-disabiilty-expense/)
Medicaid payback generally required (see https://www.specialneedsalliance.org/wp-content/uploads/2017/09/Handout-5-ABLE-Medicaid-Payback-template.pdf)
How ABLE account and Special Needs Trusts work together:
ABLE accounts may be a great alternative to a first-party special needs trust if the disabled beneficiary has some money coming in or a small amount of assets. However, the low annual cap on total contributions, the relatively low account balance required to qualify for public benefits, and the Medicaid payback provision prevent it from being a perfect solution. That is why many clients may benefit from pairing the use of an ABLE account with a third-party special needs trust (also known as a supplemental needs trust) to get the best of both worlds.
While regulations may change, generally a parent or third-party would create a special needs trust for the benefit of the disabled person. This type of trust does not have an annual contribution limit or a limit on the amount of assets that can be placed in trust. In other words, you can place as much money as you want in a special needs trust. Just as important, a third-party special needs trust does NOT have a Medicaid payback provision (that is the major difference between a first-party SNT trust and a third-party SNT trust).
If a third-party special needs trust is so great, then why would I need an ABLE account?
ABLE accounts can be funded and controlled by the disabled beneficiary and ABLE accounts also have a much broader range of qualified expenses without disrupting public benefits. For example, the special needs trust could allow distributions/transfers to an ABLE account and then the money in the ABLE account could be used for housing expenses. If such expenses were directly paid by the special needs trust then that could impact public benefits, but thanks to the ABLE account you can now pay for many expenses without risking disruption of public benefits.
If you are curious how all of this may impact your estate planning or would like to learn more about setting up a third-party special needs trust for the benefit of your disabled child, then give me a call at 781 202 6368 or email me at jlento@perenialtrust.com to schedule your free personal consultation.
I’m always happy to help,
Joseph M Lento, JD
Your local estate planning attorney
Perennial Estate Planning
477 Main Street
Stoneham, MA 02180
