ABLE (Achieving a Better Life Experience Act of 2014) accounts allow people with disabilities or their families to establish tax-free savings accounts. These accounts won’t affect their ability to qualify for, or remain on, government assistance as long as the account balance does not exceed $100,000. Any adult with special needs who owns more than $2,000 in countable assets is generally ineligible for many public benefits programs, including Medicaid and Supplemental Security Income (SSI). But because an ABLE account is not counted as a resource for most public benefits programs, the account provides savings options that can make a big difference to families with special needs children. Here are five practical uses for an ABLE account that could have a significant impact on a beneficiary’s quality of life:
Protecting UGMA/UTMA account funds: Does your minor child have a savings account? Perhaps gifts from family over the years were deposited into the child’s account? When the child becomes an adult, that bank account will suddenly be counted as a resource for purposes of determining eligibility for many public benefits programs. One practical use of an ABLE account is as a repository for money from an UGMA/UTMA account of a child who is coming of age so that it will not be counted in determining her continued eligibility for public benefits.
Shielding income: Another practical use for an ABLE account is as a receptacle for child support, alimony, or even earned wages. Using an ABLE account for sources of income such as these shields them from being counted as a resource of the child. If more than $2,000 is accumulated by the child over time in an ABLE account, the eligibility for government programs is protected. In addition, an ABLE account is flexible enough that payments deposited into an account can easily be used to pay for many of the expenses a child may have.
Windfalls: An ABLE account can play a beneficial role if your child is expecting to receive a small settlement or award, or even an inheritance or gift. Here’s how this might work for a child receiving, say, a a $150,000 settlement. Although no more than $14,000 can be deposited into an ABLE account each year, and an individual can have only one ABLE account, there are still options. The child could transfer $14,000 into her ABLE account, and a structured annuity could be purchased with the remaining $136,000 that would fund the ABLE account for a certain amount each month so that the total deposited into the account each year would not exceed $14,000. In this way, a complex special needs trust could be avoided.
Giving the child financial control: It can be frustrating to a competent but disabled adult to lack authority and control over their fiances. It is important to know that An ABLE account is managed and controlled by the disabled person. An ABLE account gives a competent disabled adult access to money that s/he alone can decide how to spend. Through an ABLE account, the child can decide whether or not to save money for such things as a home, a car, or even a wedding. Note, if a disabled individual is not legally competent or able to wisely manage resources, then a special needs trust may be a more appropriate option.
Paying household expenses: Another beneficial use of an ABLE account is using it to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third party, including a special needs trust, made the same expenditure. When it comes to its ISM rules, the Social Security Administration views money in an ABLE account as if it were the SSI beneficiary’s money, so there is no penalty when the recipient of a government benefit uses her own funds from an ABLE account to pay for his/her own housing expenses.
When it comes to planning for your child’s needs, you may wish to consider the advantages of an ABLE in conjunction with other planning choices such as a special needs trust, to craft a strategy that best fits your child’s needs now and in the future.