As we discussed previously, the Achieving a Better Life Experience (ABLE) account was a significant advancement towards improving the financial future of individuals with Special Needs. To recap, because those on public benefits such as Supplemental Security Income (SSI) or Medicaid cannot have personal financial assets greater than $2,000 at any given time, an ABLE account allows them to move funds to protect their eligibility and save or invest toward future financial needs.
While the utility of ABLE accounts doesn’t replace proactive estate planning, it can be a valuable supplement to a comprehensive estate plan, including a special needs trust (SNT). Let’s look at how these tools complement each other.
The Difference Between ABLE and SNT
First, because ABLE accounts are only available to those whose disability was established prior to age 26, these tools will generally be used together for individuals with a disability that began at a young age. In these situations, individuals are typically served best by using both an ABLE account and a third-party SNT.
A third-party SNT is typically created and funded with resources from family members. It is often written into life insurance and retirement account beneficiary designations, as well as within personal wills of family members looking to benefit their loved one. A key feature of an SNT is the protection of eligibility for means-tested benefits for the individual, as well as the exemption from Medicaid payback rules. More information on Medicaid payback can be found here.
Where to Direct Funds
In terms of funding, any significant inheritances or gifts should be directed towards the SNT, when possible. This is partially because of the $15,000 total annual contribution limit of the ABLE account, and also because the ABLE account is not exempt from Medicaid payback rules. If there was a smaller windfall that the individual received under the $15,000 limit, the ABLE account would be a fine home for those assets.
The other common funding source of an ABLE account is from accumulated funds from earnings from work and SSI payments for the individual. When the personal checking account is nearing the $2,000 limit, it makes sense to move funds over to the ABLE to avoid potential suspension of benefits.
Optimizing How You Use Funds
Once funds are in trust, a trustee approves distributions for the sole benefit of the beneficiary. One limitation of the third-party trust is the set of strict policies from Social Security regarding distributions from trust that pay for room and board benefits, known as “In-Kind Support and Maintenance” rules. To this point, ABLE accounts are more flexible in helping to pay for housing-related expenses, as they are permitted under “qualified disability expense” rules. So, it could make sense to use ABLE accounts to help pay for common housing supports, while the third-party trust could be used for significant intermittent expenses, including health-related costs, travel and educational programming.
It’s important to note that SNTs and ABLE accounts can pay for many of the same types of expenses — the distinction being that with an ABLE account, there are additional flexibilities people can take advantage of to pay for common housing expenses on a more frequent basis, including utilities, property taxes and condo dues.
Another variable to determine whether to use the ABLE account or SNT would be the balance of the account. Because the ABLE account has a maximum threshold of $100,000 that is exempt from means-testing, it may make sense use that account with more frequency than the trust account.
In theory, individuals with special needs could leverage the benefits of all three account structures:
- Personal checking: Receives SSI payments and work earnings.
- Used for paying rent/mortgage, meals/grocery, utilities, and for cash needs.
- ABLE account: Receives funds when checking account nears its $2,000 limit and receives gifts or personal payments lower than the $15,000 annual ABLE account limit.
- Pays for any qualifying disability expense, including transportation, assistive technology and employment support, or supplements housing expenses (e.g., utilities, condo dues, etc.).
- Third-party SNT: Receives larger gifts and inheritances.
- Pays for larger expenses, including health-related expenses, vacations, insurance, etc.
Again, it’s very important to note that the presence of ABLE accounts does not replace proactive estate and trust planning for your loved ones. We advise consulting with an attorney who specializes in these tools and their use. The Special Needs Alliance is a national membership of attorneys who are experts in their field. Their website can be a great place to start in researching attorneys in your area, and their directory can be found here:.
For help determining if an ABLE account, SNT or both are fitting solutions for you or a loved one, please reach out to Ryan McGuire, a specialist at Wipfli Financial in financial planning for families with special needs.
