Many families who have a child with special needs find themselves navigating complex rules around qualifying for Supplemental Security Income (“SSI”). SSI is available once an individual with a disability turns 18, and families need to plan for eligibility of government benefits before that birthday to ensure that they do not jeopardize government benefits available for their child. One of the most restrictive eligibility requirements is that an individual cannot own more than $2,000 in resources, which include cash, bank accounts, vehicles, personal property, land, life insurance, or anything that could be sold and converted to cash for food or shelter. If at some point the individual’s assets go above $2,000, they would be disqualified for SSI. This resource limitation makes the ABLE account (created under the “Achieving a Better Life Experience” Act in 2014) a very useful tool, even if the individual’s assets are below the $2,000 limit. The cost of inadvertently going over the limit is worth the hassle of setting up an ABLE account.
Mechanics of an ABLE Account
Essentially, this legislation allows eligible individuals and their families to establish an ABLE savings account that will largely not affect their eligibility for SSI, Medicaid and means-tested programs such as FAFSA, HUD and SNAP/food stamp benefits. The ABLE account funds are intended to supplement government benefits. An individual who qualifies can set up an ABLE account through a state program or a national custodian, like Fidelity Investments.
- Contributions – Anyone can contribute money to the account as long as the total contributions do not exceed $15,000 (current limit) per year.
- Withdrawals – An individual can make withdrawals for qualified disability expenses. This can include things like employment training, food, housing, personal support services, assistive technology, or healthcare expenses.
- Limitations – Each state has a different limit on the total value of the account, but if the account value rises above $100,000, SSI benefits are suspended until the balance goes below $100,000. Medicaid benefits, however, are unaffected.
Similar to a first party special needs trust, an ABLE account is subject to Medicaid payback. After the death of the beneficiary, funds remaining in the ABLE account must be used first to repay expenses incurred by states’ Medicaid programs for the benefit of the beneficiary. This restriction is a key understanding the purpose and longevity of the funds, but given the purpose of the vehicle to supplement government benefits, ABLE accounts can still be a very useful tool.
Comparison to Special Needs Trusts
Special needs trusts (“SNTs”) can be very useful tools in long-term planning for a child with special needs. While I won’t get into too many details in this commentary about SNTs, they may be necessary to protect government benefits, especially if support needs are greater than those benefits and the $100,000 limit in the ABLE account. SNTs do not have the contribution or asset value limit like an ABLE account does, making it more appropriate for larger gifts, life insurance proceeds, and long-term benefit protection. Third-party SNTs are not subject to Medicaid payback while first-party SNTs are subject to the rule.
ABLE accounts can be a very useful tool to protect an individual with disability’s government benefits. While it does not provide the extensive protection of a special needs trust, it can give a buffer to keep an individual from accidentally going over the $2,000 asset limit. An individual’s personal situation should be evaluated and consulted with a legal and financial professional to determine fit. The information provided herein is intended as general guidance to start a conversation.
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