As a parent or other loved one of a person with special needs you probably have heard of ABLE, but maybe you aren’t sure how it affects you. The ABLE (Achieving a Better Life Experience) Act passed Congress in 2014 while New Jersey enacted ABLE implementing legislation January 11, 2016. So, what does the ABLE Act do anyway? [For more detail on the ABLE Act, see our blog posts of January 11, 2016 and July 27, 2015.]
Essentially, the ABLE Act permits a disabled person or his/her friends and loved ones to set aside amounts for the disabled person without knocking the disabled person off Supplemental Security Income (“SSI”) and Medicaid. But, a special needs trust [also called supplemental needs trust] (“SNT”) can do the same thing. [For more detail on SNTs, see the Special Needs tab and Articles tab at the top of this page]. So, which is right for you– an ABLE account or an SNT?
Let’s start with ABLE’s virtues. When properly funded and administered, an ABLE account can be tax free and avoid disqualifying the disabled beneficiary for SSI and Medicaid. A well drawn and managed SNT also avoids disqualifying the disabled beneficiary for SSI and Medicaid, but it isn’t tax exempt.
So far ABLE sounds like the clear winner, right? Well, wait until you see the fine print. Like most government programs, ABLE has limitations and traps for the unwary.
Why might you be better off with an SNT than an ABLE account? Only $14,000 per year (subject to inflation adjustment after 2016) may be contributed to an ABLE account. This makes ABLE accounts impractical in many situations such as to preserve benefits when settling a personal injury claim or in a divorce. By the same token, ABLE’s limitation that each individual may be beneficiary of only one ABLE account can spell trouble if more than one person wants to provide for a person with special needs. Of similar concern, only the first $100,000 in an ABLE account doesn’t count against SSI resource limits (although the entire ABLE account is Medicaid exempt). And possibly most troubling, an ABLE account must repay Medicaid when the disabled beneficiary dies. In contrast, an SNT that doesn’t contain the beneficiary’s own money isn’t subject to Medicaid payback. Also a properly drafted SNT is not Medicaid or SSI countable even if it exceeds $100,000. However, establishing an SNT will entail legal fees while an ABLE account might avoid them.
What is the bottom line? ABLE accounts are great where a friend or loved one wants to give a disabled person less than $14,000, whether by lifetime gift or via a will. In that case, the contribution limit won’t be an issue and Medicaid payback is likely to be only a minor concern. ABLE accounts also can be useful when a disabled person is disqualified from Medicaid or SSI due to less than $14,000 in excess savings. However, that’s about it. Where more than $14,000 must be sheltered, an SNT is the way to go. SNTs face no contribution limits and don’t have to repay Medicaid unless funded by the beneficiary (such as via a personal injury claim).
How do you establish an ABLE account? Once state programs are up and running, you should be able to enroll in similar manner to a 529 plan. FriedmanLaw can help you establish an SNT whether in conjunction with wills and estate planning, guardianship, or settlement of a personal injury claim.