SPECIAL NEEDS TRUST v. ABLE ACCOUNT
If you have a loved one who is disabled, you know how important it is to ensure that the individual continues to be eligible for federally funded public benefits, such as Supplemental Security Income (SSI), Supplemental Security Disability Income (SSDI), and / or Medicaid. Supplemental Security Income (SSI) determination is based on age/disability and limited income and resources, whereas SSDI determination is based on disability and work credits. So, eligibility for SSI and Medicaid require assets and income remain below a certain limit. If your loved one is disabled and under the age of sixty-five (65), you may set up a Special Needs Trusts (SNT) for his or her assets and / or income to help ensure that the individual qualifies for or does not lose those necessary public benefits. SNTs are established for the sole benefit of the disabled individual by a parent, grandparent, or legal guardian of the individual, to help the individual qualify for public assistance or to make sure that the receipt of any settlement, inheritance, or other sudden income does not “disqualify” the individual, or cause them to lose access, from the public assistance that they need.
There are also ABLE Accounts where anyone can deposit money that can be established for the disabled individual, but SNTs and ABLE Accounts have different rules for what you can use the money for and different annual limits on how much money can be contributed each year.
SNTs are irrevocable trusts and require a Trustee, which may be a relative, and the money placed in the SNT may only be used to pay for a limited range of expenses as compared to the ABLE Accounts. Generally, the money in the SNT may be used to pay for “extra” expenses not covered by the public program. For instance, the funds can not be used to cover basic living expenses but may be used for “extra” items not covered by public programs, such as pre-paid funeral plans, hearing aids, dentures, and eyeglasses. Under certain circumstances (with first party SNTs), after the disabled individual passes away, the public assistance program, such as Medicaid, may have a right of recovery against the SNT. (If the money establishing the SNT is from a third party, such as a SNT set up in a parent’s or grandparent’s will, there is no requirement of right of recovery.).
ABLE Accounts are similar to SNTs; however, ABLE Accounts have one major limitation, they are limited in the amount that can be contributed each year. For instance, the annual limit that can be contributed to an ABLE Account in 2023 is generally $17,000.00 (and the amount is adjusted each year). So, if for instance, you have a situation where the disabled individual is inheriting or receiving a settlement greater than $17,000.00, you would need a SNT instead of an ABLE Account.
An advantage of the ABLE Account is that anyone can set it up through the state’s website and the money in an ABLE account can be used for a much broader range of expenses, including the basic costs of support services, living, education, food, employment, and transportation.
Where planning by an attorney may be most helpful is where a disabled individual may have both a SNT and ABLE Account. One such scenario where both may be advisable is when a person receives a settlement from a car wreck and the proceeds exceed $17,000.00 and should, therefore, be placed in a SNT. The SNT may then, however, contribute annually to an ABLE Account, like any other third party can contribute to the ABLE Account, without an effect on the individual’s “means-tested” benefits, but the ABLE Account can fund food or shelter expenses without the negative effect that would occur if the SNT paid such expenses directly. Therefore, a SNT which is funded with more than $17,000.00 may hold the funds but deposit up to $17,000.00 per year into an ABLE Account which could pay for a broader range of expenses for the disabled individual. It can get confusing, so I will be happy to consult with anyone who believes there is a benefit from such planning for a family member with disabilities.