Able Account or Special Needs Trust: How to Decide?
Able Account or Special Needs Trust
In December 2014, President Obama signed the Stephen Beck Jr. Achieving a Better Life Experience Act (“ABLE Act”) into law, authorizing states to create a new category of savings programs for certain individuals with disabilities. Assets held in accounts that comply with the ABLE Act will not affect eligibility for Medicaid or Supplemental Security Income (“SSI”), so long as they are used for “qualified disability-related purposes.” In planning for the future security of a child with special needs, many families wonder how ABLE accounts differ from special needs trusts (SNTs), which also safeguard a beneficiary’s public benefits. When should they establish one versus the other? The choice depends on personal circumstances, and in some cases, it may make sense to create both an ABLE account and an SNT.
ABLE legislation has been passed or is pending in 41 states. Implementation, however, will await final federal and state regulations, including regulations from the Internal Revenue Service. The Social Security Administration recently published new guidelines for ABLE Accounts in the Program Operations Manual System (POMS), but as with all developing programs, more specific implications will likely develop over time.. Accounts in some states are expected to begin to be available in the future. While some specifics will vary by state, the major distinctions between ABLE accounts and SNTs are:
Sorting It Out
Clearly there are real differences between ABLE accounts and SNTs. For someone whose disability appears at the age of 26 or later, ABLE is not an option. Neither is it feasible for handling inheritances or personal injury settlements that exceed $14,000 (for 2015 and 2016). On the other hand, for families wishing to save no more than $14,000 annually or $100,000 in total, ABLE accounts may prove extremely useful. Trusts limit the beneficiary’s control, giving all decision making authority with regard to distributions to the trustee. The independence that an ABLE account makes possible for the beneficiary may be invaluable.
The IRS has signaled that valid ABLE account distributions will be broadly defined, including basic living expenses. SNT distributions, however, may be used for virtually anything intended for the beneficiary’s sole benefit. SNT funds can pay for a vacation, a concert or a computer game without affecting eligibility for means-tested benefits. Families should carefully consider their planning objectives before making a choice.
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