ABLE Accounts for Families with Special Needs


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Families who have children with special needs often try to plan ahead to anticipate the needs of the child with disabilities. It is often very costly to provide for the basic needs of a child in this situation. However, parents who take steps to try to safeguard resources for their disabled child’s use may wind up causing a child to lose benefits. ABLE accounts may be able to fill in the gap for these families.

Resource Limits

Many federal programs like SSI have very strict resource limits. SSI and Medicaid often only allow a person to have countable resources up to $2,000. If a person exceeds these limits, they may be denied benefits or may lose benefits if they come into the resources after they were initially approved. Most programs have an annual recertification process that considers changes in assets.

ABLE Account Basics

ABLE accounts work like 529 college savings plans. These accounts allow individuals to save up to $14,000 per year for anyone who became disabled or blind before reaching the age of 26. These amounts are not counted toward the $2,000 asset limit.

ABLE accounts can be used to pay for current expenses, including living expenses. These accounts satisfy an immediate need, in contrast to other Medicaid plans like trusts. If a child is receiving SSI, money can be contributed to an ABLE account to supplement the income of the child. A child can access the funds in this account without having to go through a trustee. Some states even provide for disabled children to use a debit card to access these account funds. This allows a beneficiary to maintain greater independence than other types of estate planning tools. What makes ABLE accounts particularly different from other types of plans in place is that disabled beneficiaries can save their own money in their own name.

In addition to being used for immediate funds, ABLE accounts can also be used to fund future needs. Disabled adult children may have to undergo surgery or expensive therapies. However, one important limitation that account contributors must be aware of is that there is a maximum contribution amount of $100,000 that the account can hold at one time. If the balance exceeds this amount, the child can lose SSI benefits until the balance of the account falls below this amount. Additionally, any funds that are left in the account after the beneficiary dies may be claimed by the state to recuperate their Medicaid expenditures.

Currently, only a few states have instituted ABLE accounts. Some states are open only to residents of that state while others are available to be purchased nationally. More states are expected to institute these accounts in the beginning of 2018.

Tax Benefits

These contributions are not considered tax-deductible in terms of federal income taxes. Earnings do grow tax free. Withdrawals cover living expenses and other qualified costs are also tax free. However, some states may allow tax deductions for these contributions. For example, Nebraska allows residents to deduct contributions up to $10,000 on their state taxes. Ohio allows contributions up to $2,000 to be deducted. Virginia also offers residents $2,000 in tax write-offs. Wisconsin also gives residents a tax break for contributions to ABLE accounts.

Special Needs Trusts

One alternative to an ABLE account is a special needs trust. This type of trust also helps protect a beneficiary’s benefits while allowing him or her to have money contributed to the trust to pay for supplemental needs. There are important distinctions between this type of trust and an ABLE account. One such difference is that the trust prohibits the beneficiary from having direct access or control over the account. Instead, a named beneficiary has the responsibility of making distributions. There are no maximum limits to how much funds can be put in a special needs trust. However, these trusts are often complicated and often more expensive to set up. ABLE accounts are not available in all jurisdictions while special needs trusts are provided for under federal law.

Legal Assistance

Individuals who would like their disabled children to retain their federal benefits may wish to discuss these issues and concerns with an estate planning lawyer who is experienced in public benefit cases. Being able to retain benefits can result in significant cost savings over the lifetime of the disabled child, especially if these benefits are paying expensive medical costs. An estate planning lawyer can analyze the circumstances to determine which options may be available.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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