In December of 2014 the Achieving a Better Life Experience Act (ABLE) was signed into law. Many special needs clients and their families have been shy about using ABLE accounts because HUD and other government programs did not make an official statement of how they would treat ABLE accounts until May of this year.  Here we have broken down the good and the bad of ABLE accounts and Special Needs Trusts (SNT).  In most cases it makes since to have both working together to utilize the tax-free incentive of the ABLE account.  SNT’s can also transfer funds into an ABLE account without the risk of losing Medicaid.

ABLE Accounts

The Good

• Tax-free account
• For individuals that work but do not have an employer-sponsored retirement account, $12,140 in additional savings from income are allowed, for a total of $27,140, in 2019
• Can be directly managed by the named party
• A previously established Uniform Transfer to Minor’s Act account can be deposited into an ABLE account
• Is not counted in determining qualification for Medicaid, HUD, SSI, and other government programs
• Savings can be deposited into ABLE by the individual when they get close to the $2,000 threshold allowed by Medicaid in their personal account.
• Covers education, housing, transportation, employment training and support, assisted technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses

The Bad

• Only available to those who established a disability prior to age 26
• Cap of $15,000 a year can be deposited
• Limit on lifetime contributions
• Withdrawals only cover disability related expenses not personal preferences
• Can not handle large inheritances or personal injury settlements.
• Medicaid requires ABLE funds in account at time of death to pay back any medical costs paid by the program since the creation of the ABLE account.
• Contributions aren’t tax deductible

Special Needs Trust

The Good

• Can work with an ABLE account by trustee moving funds into an ABLE account
• Medicaid does not require pay back of any medical costs if the SNT is a third party trust

The Bad

• Is managed by a trustee instead of the individual
• If certain expenses, such as housing, are paid by trust it will affect SSI
• If created with the beneficiaries assets Medicaid requires the SNT to pay back any medical costs paid by the program throughout the individual’s life
• Can not be changed once created