Special needs trusts are a valuable tool to make sure an individual with special needs has a good quality of life beyond what government benefits can fund. Supplemental Security Income (SSI), Medicaid and other government programs, while critical for those with disabilities, do not cover all of life’s necessities. To make up the difference, special needs trusts can fund life enhancing medical care, therapies, recreation and other items that public benefits do not cover.
However, special needs trusts have limitations. For example, funds from a special needs trust cannot be used to pay a disabled individual’s food and shelter without potentially jeopardizing that person’s government benefits. Nor can the special needs trust beneficiary access or spend funds from a special needs trust.
That is why having an ABLE account in addition to a special needs trust can be incredibly helpful. In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, to allow qualified individuals who have disabilities and their families to save money in tax-advantaged accounts for “qualified disability expenses.”
ABLE accounts are similar to 529 college savings accounts, allowing tax-free growth of investments and tax-free withdrawals provided the withdrawals are spent on qualified disability expenses. Basic details about ABLE accounts include:
- To qualify for an ABLE account, an individual must have the onset of a significant disability any time before age 26;
- Qualified individuals and their families can contribute up to $15,000 annually to an ABLE account plus an additional $12,000 from the qualified individual’s employment earnings;
- “Qualified disability expenses” include housing, education, transportation, employment, and basic living expenses;
- A qualified individual can spend ABLE account funds himself or herself on qualified disability expenses; and
- An individual who is receiving SSI can only accumulate $100,000 in his or her ABLE account without losing their SSI benefit.
When used properly, an ABLE account is a powerful tool. An ABLE account beneficiary can spend the ABLE account funds themselves, providing a much-needed degree of independence. And just as importantly, ABLE account funds can be used to pay for housing expenses without jeopardizing government benefits, unlike a special needs trust. Government benefits – most notably SSI – often do not provide enough monthly income to rent an apartment. Thus, being able spend ABLE account funds to pay rent can make the difference between affording decent housing or not at all.
If you live in Jenkintown, Eastern Montgomery County or Bucks County, and are considering an ABLE account or other special needs planning, please contact my office at email@example.com.