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ABLE Accounts and Supplemental Needs Trusts—Saving Money for a Person with a Disability Without Disinheriting Them

By Debra Schuster

I often meet with parents of a child with a disability who tell me, when discussing their estate planning, that they cannot leave that child money for fear of jeopardizing the child’s eligibility for public benefits or that they are counting on their other children to support the disabled child. 

There are better ways to address this situation: creating Supplemental and Special Needs Trusts and ABLE accounts.

Many public benefit programs that are “means-tested,” such as Medicaid (for health insurance) and Supplemental Security Income (“SSI”) (that provides income to a person with a disability) have income or asset thresholds that are financial criteria to determine eligibility. If a person with a disability has assets and income in their name, they are often ineligible for such public benefit programs. 

To enable individuals with disabilities to qualify for means-tested benefit programs and have income and assets that can be used for their needs, Congress enacted three laws that allow a person with a disability to have money preserved for them and qualify for these types of public benefit programs: OBRA 1993, the Special Needs Trust Fairness Act, and the ABLE Act (Achieving a Better Life Experience Act).

  1. Supplemental Needs Trusts: These can be created by a parent, grandparent, guardian, or a court that names a disabled person as the trust beneficiary. These trusts are funded with a third party’s assets. The trustee cannot be the disabled person but can be almost any other individual or entity who has the time to handle funds for a person who receives public benefits and who can understand the needs and wants of that person. 
  2. Special Needs Trusts: These trusts can be created by a disabled person, as well as those who can create Supplemental Needs Trusts, so long as the disabled person has the mental capacity to understand the nature and use of this type of trust. The funds for a Special Needs Trust belong to the disabled person, such as funds from a settlement, judgment, inheritance, Social Security back-award, life insurance proceeds, or even lottery winnings, funds that come to the disabled person directly in their name. Unlike Supplemental Needs Trusts, Special Needs Trusts must have language guaranteeing repayment of any Medicaid benefits paid on the disabled person’s behalf during their lifetime if funds remain in the trust at the time of the disabled person’s death. 
  3. ABLE accounts: These allow a disabled person to preserve money that doesn’t count against means-tested public benefit programs and can be used for disability-related expenses to enhance their quality of life. The tax advantages of these accounts are similar to 529 education accounts.

ABLE accounts can be established for disabled persons so long as the onset of disability is documented to have occurred before age 26 (changing to age 46 in 2026(!)). A sum that doesn’t exceed the annual gift tax exclusion amount can be deposited into an ABLE account each year. The first $100,000 in an ABLE account will be disregarded when considering a person’s SSI eligibility. ABLE accounts can pay for a broad array of goods and services that Supplemental and Special Needs Trusts can pay for, but housing-related items can be paid with ABLE account funds that trusts cannot pay for without jeopardizing a person’s SSI eligibility. Frequently, people with disabilities have both an ABLE account and a Supplemental or Special Needs Trust. Suppose the state files a claim upon the disabled person’s death. In that case, repayment of any Medicaid benefits paid on the disabled person’s behalf during their lifetime may be required from funds remaining in the ABLE account. 

The attorneys at Paule, Camazine and Blumenthal P.C. can assist you in finding the best options for your estate planning needs.

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