Question: What is the difference between an ABLE account and a Special Needs Trust?
Answer: If you have a child, grandchild, or other loved one with special needs, you are likely concerned about their financial well-being particularly if you are no longer around to help provide for them. They may need to qualify for government benefits, so whatever assets they have will need to be held in such a way that they don’t jeopardize government benefits.
Understanding ABLE Accounts
ABLE accounts are relatively new on the planning scene. These accounts offer people with disabilities a tax-free savings option that will not interfere with their eligibility for means-tested government assistance like Medicaid and Supplemental Security Income (SSI).
Similar in nature to a 529 College Savings Plans, total contribution to an ABLE account are tied to the provider state’s limit on total contributions to a 529 Plan. Total annual contributions are tied to the federal gift tax exclusion amount ($15,000 for 2020). Each individual may have only one ABLE account, and if account assets exceed $100,000, the excess counts toward the allowable $2,000 resource limit for SSI eligibility. SSI payments will be suspended until the account balance is under $100,000.
An ABLE account can be established and managed by the disabled person if they have the capacity to do so. However, more commonly, a parent, conservator or guardian, or agent under a power of attorney establishes and manage the account.
ABLE account funds can be used for a beneficiary’s “qualified disability expenses.” These expenses include basic living expenses, health care expenses, housing, transportation, education, employment training and support, personal support services, assistive technology, financial management, and administrative services.
If an ABLE account beneficiary receives Medicaid benefits, and dies with assets in the ABLE account, the state Medicaid agency may claim reimbursement against the assets in the account.
Comparison with Special Needs Trusts
Like an ABLE account, a special needs trust (SNT) may be established by the beneficiary, parent or grandparent, conservator or guardian, or agent under a power of attorney. Such trusts are called first-party special needs trusts. A third-party special needs trust may be established by anyone other than the beneficiary.
Unlike ABLE accounts, one individual can be a beneficiary of multiple SNTs, and there are no limits on the assets each can hold. The trustee may spend the funds for anything, though you have to be careful when it comes to housing or food benefiting the beneficiary. Such disbursements will not jeopardize the beneficiary’s government benefits. For SSI recipients, however, disbursements from the trust for food and housing are considered “in kind” support, which may result in a reduction in SSI payments (which may still be beneficial depending upon the beneficiary’s circumstances).
As with ABLE accounts, funds in a first-party SNT are vulnerable to a claim for Medicaid reimbursement on the beneficiary’s death; those in a third-party SNT, however, are not.
As always, if you have any questions or would like to learn more, please contact Steve Shane at email@example.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With 14 offices in seven states, and the District of Columbia, and growing by 50% in two years through expansions in New York City and Charlotte, North Carolina, Offit Kurman is well-positioned to meet the legal needs of dynamic businesses and the individuals who own and operate them. For over 30 years, we’ve represented privately held companies and families of wealth throughout their business life cycles.
Whatever and wherever your industry, Offit Kurman is the better way to protect your business, preserve your family’s wealth, and resolve your most challenging legal conflicts. At Offit Kurman, we distinguish ourselves by the quality and breadth of our legal services—as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners also gives clients access to experienced counsel in every area of the law.
Find out why Offit Kurman is The Better Way to protect your business, your assets and your family by connecting via our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA | VIRGINIA | WASHINGTON, DC