The interplay between Special Needs Trusts (SNTs) and ABLE (Achieving a Better Life Experience) accounts is a crucial consideration for families planning for the financial future of individuals with disabilities. Both tools serve to protect assets and enable individuals with disabilities to maintain financial independence, but they operate in distinct ways and can be powerfully combined. An SNT allows a person with disabilities to receive an inheritance or settlement without jeopardizing their eligibility for means-tested public benefits like Supplemental Security Income (SSI) and Medicaid, while an ABLE account allows individuals with disabilities to save money without affecting those same benefits, up to certain limits. Understanding how these two vehicles work together is paramount for comprehensive financial planning.
Can an SNT and ABLE account be used together?
Yes, they absolutely can, and often should be. Prior to the ABLE Act, SNTs were the primary means of managing funds for individuals with disabilities while preserving benefits. However, SNTs often require significant oversight and can be complex to administer. ABLE accounts offer a level of independence and control that SNTs traditionally didn’t allow. Funds can be deposited into an ABLE account, and as long as the account balance remains below the federal limit—currently $100,000 as of 2023, with potential for increases tied to inflation—it doesn’t affect eligibility for SSI or Medicaid. An SNT can then be used to manage larger sums of money, provide for expenses not covered by the ABLE account, or serve as a remainder beneficiary for funds exceeding the ABLE account limits. This combination allows for a flexible and comprehensive financial strategy.
What expenses can ABLE accounts cover?
ABLE accounts provide significant flexibility in covering qualified disability expenses (QDEs). These include expenses related to education, housing, transportation, employment training and support, assistive technology, personal support services, health care expenses (beyond what Medicaid covers), and even entertainment. The range of allowable expenses is designed to improve the quality of life for individuals with disabilities and promote their independence. It’s important to note that, unlike some other savings accounts, funds in an ABLE account are not considered in determining financial eligibility for SSI and Medicaid, so long as the account doesn’t exceed the contribution limit. This is a significant advantage, as it allows individuals to save for future needs without penalty.
What happens to funds if an ABLE account beneficiary passes away?
This is where the interplay with an SNT becomes particularly important. If an ABLE account beneficiary passes away, any remaining funds in the account must be paid to the state Medicaid program to recoup any benefits received. This can be a significant concern for families who want to ensure their loved one’s savings are passed on to their chosen beneficiaries. However, if the SNT is designated as the remainder beneficiary of the ABLE account, the funds can be directed to the trust, avoiding state recoupment. This provision allows families to preserve assets for future generations or for the benefit of other family members with disabilities. I once worked with a family where the parents hadn’t considered this possibility. After the son passed, the state took all the funds in the ABLE account, leaving nothing for his sister, who also had special needs. It was a heartbreaking situation that could have been easily avoided with proper planning.
Can an SNT fund an ABLE account?
Yes, absolutely. An SNT can be structured to contribute funds to an ABLE account on behalf of the beneficiary, as long as the contribution doesn’t exceed the annual contribution limits for ABLE accounts. As of 2023, the annual contribution limit is $17,000, or $34,000 if the beneficiary is eligible to receive both SSI and Medicaid. This allows the trustee of the SNT to utilize the ABLE account as a tool to manage a portion of the funds and provide the beneficiary with greater control over their finances. I had a client, Maria, whose son, David, had Down syndrome. David was receiving a settlement from a personal injury lawsuit. We established an SNT to manage the funds and then directed a portion of the settlement to fund an ABLE account. This allowed David to have some financial independence and control over funds for things like travel and hobbies. The rest of the funds were managed by the SNT for long-term care and support. It was a wonderful outcome, and Maria was relieved to know that David would have both security and independence.
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