For my clients who have a child with special needs or who live with a disability themselves, I encourage them to consider establishing a special needs trust and/or setting up an ABLE Account. While an ABLE Account offers several important benefits, there are also some things worth considering when opening an ABLE account. Let me explain some drawbacks to creating an ABLE Account.
What Is an ABLE Account?
Although many disabled adults are able to live independently, they frequently remain dependent on state and federal assistance programs such as Supplemental Security Income (SSI) and Medicaid. Those programs have income and asset limits that cannot be exceeded, or the recipient loses his/here eligibility. For parents, grandparents, and others wishing to contribute financially to the disabled individual, these program limits can create a problem. One solution is to create an ABLE Account.
Structured similarly to Section 529 college savings accounts, ABLE accounts offer a tax-advantaged way to contribute financially to someone who has a disability but without impacting eligibility for much-needed assistance programs. The funds held in an ABLE Account can be spent on qualified disability expenses (QDEs) such as transportation, assistive technology, health and wellness, and employment support. Withdrawals from an ABLE Account are not taxed if the funds are used for a QDE and the account can grow tax-free up to $100,000 without the account assets being counted for purposes of determining eligibility for SSI, Medicaid, and other assistance programs.
Drawbacks to an ABLE Account
The benefits to creating an ABLE Account are clear; however, there are also some important drawbacks that should be considered when comparing the benefits of an ABLE Account to those of a Special Needs Trust (SNT). ABLE Accounts are governed and administered by each state but there are some universal drawbacks worth noting, such as:
- Age of disability. To qualify for an ABLE Account, the disabled individual must have become disabled prior to reaching 26 years old. This age requirement does not apply when creating a special needs trust.
- Control. When you establish an SNT you must appoint a Trustee to manage the trust. Conversely, an ABLE Account is managed by the beneficiary, although a parent can petition to become the account manager. For beneficiaries who are capable of managing money, this aspect of an ABLE Account may be an advantage; however, if a parent is needed to manage the money it can become a problem if the parent predeceases the beneficiary. In that case, a conservator of an Appointed Representative Payee from the SSA would likely need to step in and manage the money.
- Single account. A beneficiary can only have one ABLE Account whereas there is no limit to the number of Special Needs Trusts that can be established.
- Medicaid Estate Recovery Program. In most states, the Medicaid Estate Recovery Program (MERP) is allowed to seek reimbursement from a decedent’s estate for funds Medicaid paid on behalf of the beneficiary. Consequently, money left in an ABLE Account at the time of the beneficiary’s death might be used to repay Medicaid.
While each of these drawbacks should be considered when contemplating the addition of an ABLE Account to your overall estate plan, the advantages of creating an ABLE Account cannot be forgotten as well. The best way to decide what tools and strategies for assisting a disabled individual work best in your estate plan is to consult with your estate planning attorney.
Contact a North Carolina Special Needs Planning Attorney
If you have additional questions or concerns about whether to incorporate an ABLE account in your estate plan, please contact the Chapel Hill, Raleigh, and Durham special needs planning attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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