Q. My 9-year-old daughter, Noelle, is intellectually disabled. The costs for her therapy and assistive technology are quite high, and we are in the process of applying for government assistance (SSI).
Despite our struggles to make ends meet, her grandparents and my husband and I would like to save as much as we can to make sure she has everything she needs to be the best she can be. I heard about a new act, called the ABLE Act, that was approved by Congress this week. Can you tell me how it will work if signed into law by the President, and whether it will impact our eligibility for government assistance? Also, what can I do to ensure my daughter is taken care of, should something happen to me or my husband in the future? Thank you for your help and happy holidays!
A. The Achieving a Better Life Experience, or ABLE Act, which was approved by the Senate the evening of December 16 (having already passed in the House), is expected to be signed into law by President Obama. Once signed by the President, the ABLE Act will allow people with disabilities to create special accounts where they could save up to $100,000 without risking eligibility for benefits such as SSI and Medicaid. It is anticipated families could begin opening ABLE accounts in early 2015 after the IRS establishes rules and regulations.
The way an ABLE Act account would work is somewhat analogous to a 529 account for college students. ABLE accounts can only be used for expenses connected with a disabling condition.
Below are some preliminary guidelines:
- Establishing the account: An ABLE account can be established by a disabled individual or by others with the qualifying individual named as the account beneficiary.
- Earnings would grow tax free. When ABLE Accounts are created, qualifying individuals and their families will be able to deposit up to $14,000 annually. As in the 529 model, funds can be invested with tax-free growth potential.
- Withdrawals can be made that are tax-free on the federal level. Expenses can be paid from the ABLE account for the benefit of the disabled individual for education; housing; transportation; employment training and support; assistive technology and personal support services; health, prevention, and wellness; financial management and administrative services; legal fees; expenses for oversight and monitoring; funeral and burial expenses; and any other expenses approved under regulations.
- Age requirement: The disabled person establishing the account or for whom it is set up must have become disabled before reaching age 26. Therefore, an ABLE account could help younger people with developmental disabilities, mental illness, and conditions such as cerebral palsy.
- Supplemental Security Income (SSI): If the assets in an ABLE account reach $100,000 and the beneficiary is receiving SSI benefits, monthly SSI benefits will be placed in suspension. If the assets in the ABLE account drop back below $100,000, the SSI cash benefits resume. No re-application is necessary.
- Medicaid Eligibility: A beneficiary will not lose eligibility for Medicaid based on the assets held in the ABLE account, even during the time that SSI benefits are suspended (as described above for an account with over $100,000).
- Medicaid Payback Provision: Under the ABLE Act, when the qualified beneficiary dies (or if he/she is no longer disabled), any remaining assets in the ABLE Account are used to “pay back” any state Medicaid plan up to the value of Medicaid services provided to the beneficiary. The payback is calculated based on amounts paid by Medicaid after the creation of the ABLE Account. This is a MAJOR drawback for most families who want to fund a trust without giving up the right to allow other family members to ultimately benefit from any remaining assets. The National Academy of Elder Law Attorneys is fighting to ensure that the best parts of the ABLE legislation are preserved while proposing amending the Medicaid payback requirement.
For more details on the ABLE Act, please read this article on the Autism Speaks Website.
Special Needs Planning
It is vitally important for parents to take the right steps to ensure their child will be financially secure and cared for in the event of death or disability of the parent, including:
• Hiring an attorney who is experienced in creating special needs trusts, such as myself; • Clearly spelling out your wishes for the disbursement of trust funds within the trust document; • Finding someone you can trust that has your child’s best interests at heart to serve as trustee and/or • Hiring an institutional trustee that has a reputation for utilizing social workers and case managers to monitor the welfare of beneficiaries and determine how trust funds should be spent.
Special Needs Trust
Unlike an ABLE Account, assets remaining in a properly established Third Party Special Needs Trust are not recoverable by Medicaid at the time of the beneficiary’s death if the trust was funded using the assets of the parent or other third party. This allows the creator to provide for a secondary beneficiary. Therefore, an ABLE account should NOT be used as a substitute for a Third Party Special Needs Trust, but rather only a limited substitute for a First Party Special Needs Trust.
A special needs trust is recommended to protect a disabled individual’s financial future. Also known as Supplemental Needs Trusts, this type of trust preserves legal eligibility for federal and state benefits by keeping assets out of the disabled person’s name while still allowing those assets to be used to benefit the person with special needs. Read more here.
When it comes to special needs planning, the Fairfax and Fredericksburg Law Firm of Evan H. Farr, P.C. can guide you through this process. If you have a loved one with special needs, call 703-691-1888 in Fairfax or 540-479-1435 in Fredericksburg to make an appointment for a no-cost consultation.
Happy holidays to you and your family!