Last week I was telling you about a call I received about the benefits of an Achieving a Better Life Experience (ABLE) account vs. a special needs trust (SNT). Joan called about her sister Mary, who is receiving an inheritance from their uncle’s estate. Mary is in a group home and receives SSI and Medicaid benefits.
Joan correctly is concerned that the inheritance of $200,000 would cause Mary to lose those benefits. She wants to set up an ABLE account and place the inheritance proceeds into that account. She prefers an ABLE account because it is less expensive to set up and she believes it is easier to manage.
I told Joan, however, that she was misinformed. Let me tell you why. First of all, an ABLE account can only be funded with $14,000 per year. Secondly, if the total account value exceeds $100,000, eligibility for SSI benefits will be suspended. Losing SSI will then cause a loss of Medicaid benefits. These reasons alone make an ABLE account impossible here.
But there’s more. Even if Mary’s inheritance was small enough to meet the financial limits above, Mary’s disability must have occurred before she reached the age of 26. When I asked Joan details about Mary’s condition and diagnosis it was clear to me that Mary’s disability only existed after that age.
Mary thought that the ABLE account is the equivalent of an SNT without the legal cost to setting up the SNT. She couldn’t be more wrong. There are other important differences between the two. ABLE accounts cannot hold physical assets such as real estate or vehicles because they are not separate entities. SNTs on the other hand, can hold such assets.
ABLE accounts have a Medicaid pay back provision which requires that any money left in the account when the disabled individual dies must be used to repay Medicaid for any benefits paid during the individual’s lifetime. A third party SNT – one created and funded by someone other than the disabled individual – does not require a pay back provision. Anything remaining in the trust at the individual’s death can benefit other family members.
Finally, ABLE accounts are owned by the disabled individual who has full access to the account. SNTs are managed by a trustee. This is important to families concerned that the disabled individual may not be able to handle his/her own money. While a guardian can be appointed to handle the funds, that only is possible with a declaration of incapacity. If a judgment of incapacity by a judge is not possible then the ABLE account will be completely accessible to the individual. An SNT, however, does not require a judgment of incapacity.
So, the next time you hear someone say that an ABLE account is a less expensive alternative to an SNT don’t believe it. While it might be suitable in certain situations it doesn’t replace the need for SNTs.