Here’s a scenario that may be familiar to families whose adult children receive federal or state benefits, and who are concerned with how various expenses can be covered without negatively impacting those benefits.
Consider this hypothetical: It’s the start of a new school year, and your young adult son with a disability is very interested in taking a course in graphic design at a school about 50 miles away. He also is eager to live independently, and there is a suitable apartment complex near the school both within walking distance and serviced by the campus bus system. The problem is that expenses associated with the course and living away from home will far exceed his monthly Supplemental Security Income (SSI) check. Can he go to school and live independently without jeopardizing this and other important benefits? How do you best support him while protecting critical support?
Caring for an individual with special needs, or living as an adult with special needs, brings unique challenges. Because the rules which govern critical government benefits like SSI or Medicare are so complex, Special Needs Trusts (SNTs) long have served the function of helping individuals meet stringent income standards for benefits eligibility while preserving some financial independence. However, SNTs are not directly controlled by the beneficiary and carry their own limitations, including the restrictions on paying for basic living expenses such as food and rent. Recognizing the need for access to more resources, the ABLE (Achieving a Better Life Experience) Act was passed in 2014.
ABLE accounts are a genuine game-changer for individuals with disabilities. Unlike SNTs, ABLE accounts are investment accounts that can be owned and controlled directly by the beneficiary. Even more attractive is that ABLE accounts are non-taxable investment accounts (invested with post-tax dollars) that, when properly managed, do not interfere with eligibility for federal needs-based benefits. And, unlike SNTs or direct supports, ABLE funds can be used for basic living expenses, including rent, utilities and food, without jeopardizing or reducing federal needs-based government benefits.
By allowing funds to be used tax-free for “qualified disability-related expenses,” ABLE accounts provide spending flexibility previously unavailable to individuals with special needs. So, what are “qualified disability-related expenses?” The law doesn’t describe these in detail, but does specify that these may include expenses related to:
- Employment Training and Support
- Assistive Technology
- Personal Support Services
- Health Care Expenses
- Financial Management
- Administrative Services
- Other Qualified Expenses
If the son in our previous example had an SNT and an ABLE account, he and the trustee of the SNT would have the flexibility of using either SNT or ABLE funds to pay for his jewelry course, which is an education/training expense, and also could utilize ABLE funds for his housing related expenditures. Determining which pocket of funds to use for a particular expense requires a thorough understanding of the relevant rules and restrictions. Certain expenditures permissibly can be paid from either an SNT or an ABLE account but, in some circumstances, one might be the better choice (for example, an SNT to pay for vacation or education expenses, and an ABLE to cover housing and shelter costs).
ABLE accounts are a valuable complement to an SNT when designing the comprehensive care plan for individuals with disabilities, especially given the ability to cover costs of the individual’s day-to-day living. Also, in instances when there is no SNT in place, an ABLE account may provide a needed source of funds for a variety of disability and living-related expenses without jeopardizing benefits. With an ABLE account, capable beneficiaries now may have direct control over funds, and can save assets above the very modest resource limits for Supplemental Security Income (SSI) and many Medicaid programs. Individuals with disabilities who own an ABLE account are afforded more autonomy and need not seek approval from a trustee to pay for a permissible expense, thus leaving them free to pursue and fund independent experiences
However, there are rules regarding who can participate in an ABLE program, how much the account can receive annually and other important spending and funding parameters which may vary from state to state. It’s always best to consult an experienced special needs attorney and your financial advisor to determine what financial tools will best meet the specific needs of your family member.