Individuals with special needs must be very careful how they handle their finances in order to maintain eligibility for means-tested public benefits, such as VA pensions programs, Supplemental Security Income (“SSI”), Medicaid, Section 8 Housing, food stamps and other federal and state programs. Each program evaluates income and assets differently and a program participant may lose their benefits if their income or assets change. ABLE Accounts and Special Needs Trusts (also known as Supplemental Needs Trusts, “SNT”) enable persons to receive inheritances, personal injury settlements and other resources while maintaining their eligibility for benefits. This blog post will cover ABLE accounts only.
1. ABLE Accounts
Idaho is only one of nine states who have not enacted their own ABLE program. If a state does not have an ABLE program, residents may join an ABLE program operated by another state. Individuals with ABLE accounts could maintain eligibility for means-tested benefit programs, such as SSI and Medicaid. The assets in the account are non-countable for federal means tested benefit program eligibility purposes.
- Eligibility Requirements
An account can only be set up for an individual who is blind or disabled, and the onset of the blindness or disability must have occurred before the individual attained the age of 26 years. If the individual meets this disability requirement and already receives SSI or Social Security Disability (“SSDI”), then the individual is automatically eligible to establish the account. Only one person can be the beneficiary of the ABLE Account and the beneficiary can only have one ABLE account. The account can be opened by the disabled person or by a parent, agent under power of attorney, or guardian. The disabled person can be the account manager and decide on what distributions are to be made and for what purposes.
- Contributions
The amount allowed to be deposited to an ABLE account is currently $15,000 per year. The total may be obtained by a single or multiple contributions. ABLE accounts have the same limits as 529 Plans. However, if an ABLE account ever exceeds $100,000, any excess could cause a suspension of SSI until the account is reduced to $100,000 or below.
- Distributions
An ABLE account allows distributions for qualified expenses related to the individual’s disability, such as health, education, housing, transportation, training, assistive technology, personal support, related services, and expenses.
Qualified Disability Expenses include:
- Education;
- Housing;
- Transportation;
- Employment training and support;
- Assistive technology and related services;
- Health;
- Prevention and wellness;
- Financial management and administrative services;
- Legal fees;
- Expenses for ABLE account oversight and monitoring;
- Funeral and burial; and
- Basic living expenses
Distributions, including investment earnings generated by the account, to an eligible individual for qualified expenses are not taxable. Distributions for non-qualified expenses are subject to income tax on the portion of such distributions attributable to earnings from the account, plus a 10 percent penalty on such portion.
- Medicaid Payback.
Upon the death of the individual, amounts remaining in the account must be paid back to Medicaid. After the Medicaid payback, the remaining funds would be payable to the deceased’s estate or to a designated beneficiary.
2. Advantages and Disadvantages of ABLE Accounts
An ABLE account provides flexibility because, unlike Special Needs Trusts, the beneficiary can control a small amount of money, so long as it is used for qualified disability expenses. Also, the funds distributed don’t count as income to the beneficiary. However, ABLE accounts have disadvantages such as a limits on the size of the account and on annual contributions. Also, ABLE accounts require Medicaid payback that would not be required in a Third Party Special Needs Trust. Moreover, an ABLE account is restricted to those with a disability onset prior to age 26, whereas Special Needs Trust can be established for a broader age range.
