Learn the Basics of ABLE Accounts with Life’s WORC Trust Services

 

You may have heard about ABLE Accounts and wondered how they might benefit you or your loved one with Special Needs. Our legal team at Life’s WORC Trust Services has provided answers to some of your most pressing questions. Read on and learn more about why ABLE Accounts were created, what the money can be spent on, and what alternatives you or your loved one have when considering your unique situation. As always, we are here to help guide you in your family’s financial planning.

 

1) Could you briefly explain what an ABLE Account is and how it is different from a Special Needs Trusts?

ABLE Accounts are made possible by the Stephen Beck, Jr., Achieving a Better Life Experience (ABLE) Act of 2014. The ABLE Act authorized states to establish tax-advantaged savings programs for individuals with disabilities.  To qualify, the eligible individual must either have:

  • a disability present before age 26, and the individual must be entitled to SSI or Social Security Disability Insurance (SSDI) because of his or her disability, or
  • a disability must be present before age 26 and at least one of the following requirements must be met:
    • The individual has a written diagnosis from a licensed physician documenting a medically determinable physical or mental impairment which results in marked and severe functional limitations, that can be expected to last for at least a year or can cause deathor
    • The individual is classified as blind (as defined in the Social Security Act), or
    • The individual has a disability that is included on the Social Security Administration’s List of Compassionate Allowances Conditions 

The funds in an ABLE Account must be used for a qualified disability expenses.  

A “Qualified Disability Expense” means expenses that are incurred by the eligible individual that relate to their blindness or disability, and are intended to maintain or improve the person’s quality of life. 

These qualified expenses include:

  • Education
  • Health and wellness
  • Housing
  • Transportation
  • Legal fees
  • Financial management
  • Employment training and support
  • Assistive technology
  • Personal support services
  • Oversight and monitoring
  • Funeral and burial expenses

We recommend that a record of expenses and payment receipts be maintained in case it is ever needed. If NY ABLE savings are used for non-qualified expenses, the earnings portion of the withdrawal will be treated as income – subject to federal and applicable state taxes.  It can also result in a federal tax penalty.  Funds not utilized for Qualified Disability Expenses can also be counted in benefit eligibility determinations. 

Special Needs Trusts, also known as Supplemental Needs Trusts, are a critical tool in planning financially for a loved one with a disability.  A special needs trust is a type of trust that allows a trustee, to manage funds for the benefit of a person with a disability while preserving that person’s eligibility for government benefits.  A special needs trust is intended to pay for items that are not covered by government benefits and that would enhance an individual’s quality of life.   

Both ABLE Accounts and Special Needs Trusts are ways to save for a person with a disability while preserving their eligibility for government benefits.  Each has different requirements and limitations.  ABLE Accounts allow, if applicable, for the disabled person to have direct access to their money.  When utilizing a trust there is no direct access to the funds by the person with a disability. ABLE Accounts have funding limitations while trusts do not.  Also a trust can make contributions to an ABLE Account. Additionally, they have different restrictions on what the money can be used for. For example a trust could pay for the person with a disability’s air fare for a vacation but it doesn’t appear that this expenditure would be considered a qualified disability expense.  In most cases, trusts and ABLE Accounts can be utilized together, depending on the individual situation.    

2) What kinds of banks offer ABLE Accounts?

Many states have their own ABLE Account offerings.  In New York it’s NY ABLE.

3) What are the circumstances in which an ABLE Account is a good idea?

ABLE Accounts can be utilized to teach skills like banking and money management as the eligible individual has direct access to the funds in the ABLE Account, if appropriate.  Also, ABLE Accounts can increase a person’s independence.  ABLE accounts can be used for housing expenses, under certain circumstances, without affecting benefits. ABLE Accounts also work well for individuals that do not have excess or surplus income as calculated by Medicaid in New York. Trusts and ABLE Accounts can work well together depending on the particular situation and individual goals.  

4) What kinds of limits are there in place for savings in an ABLE Account?

There are limits on the amount that can be contributed to an ABLE Account.  The yearly limit in 2020 is 15,000, with certain exceptions. Also, a person can only have one ABLE Account.  To maintain eligibility for Social Security Income the ABLE Account balance must stay below 100,000. ABLE Account balances that are unused at the time of the eligible individuals passing are subject to pay back to Medicaid.  

In comparison, Third Party Supplemental Needs Trust can include a beneficiary and funds remaining after death can be passed to the named beneficiary.  Additionally, for Supplemental Needs Trusts there is no contribution limit.    

5) Does an ABLE Account count against any entitlements and services the beneficiary is accustomed to receiving?  

Both ABLE Accounts and Supplemental Needs Trusts do not count toward determining eligibility for Medicaid and Social Security when properly utilized.  With ABLE Accounts it is the eligible individual, their family, Power of Attorney, or guardian that must ensure they are properly utilizing the funds in the ABLE Account and properly maintaining their records in case there are questions in the future.  When utilizing a trust you can consider an organization to be the trustee and they would have the responsibility for ensuring that the regulations and rules are properly followed.  

6) How can Life’s WORC help you with setting up a Trust or an ABLE Account and assist with other financial planning decisions?

Life’s WORC Trust Services can discuss all of your options with you.  In consultation with your attorney, we can provide valuable guidance on how to support your loved one with a disability based on their unique situation.