As part of estate planning for special needs individuals and their families, supplemental needs trusts and special needs trusts have been around for years. Beginning in 2015, based on changes in the law, there is now another alternative for those who are deemed disabled prior to age 26 – special needs individuals may set up ABLE (“Achieving a Better Life Experience”) accounts for themselves to assist in paying for qualified disability expenses. To be a beneficiary of an ABLE account, the individual, prior to age 26, must be entitled to benefits based on blindness or disability under the Social Security Disability program or under the Supplemental Security Income program or must file a disability certification with a medical diagnosis signed by a doctor with the IRS.
Funds contributed to ABLE accounts, up to $14,000 in 2015, would accumulate on a tax-exempt basis. ABLE accounts would be similar to 529 accounts, which pay educational expenses for a named beneficiary. Any person may contribute to ABLE accounts. (The total amount is similar to the gift tax exclusion amount and will be adjusted annually for inflation.) There are rules on how expenditures from ABLE accounts are considered by Social Security.
ABLE accounts may pay qualified disability expenses, including education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, oversight and monitoring expenses as well as funeral and burial expenses.
On the other hand, a Supplemental Needs Trust may be set up for the benefit of a disabled beneficiary by a family member or third party and is intended to preserve the beneficiary’s eligibility for Medicaid, Supplemental Security Income (SSI) or other government benefits. It does not use the funds of the disabled beneficiary.
A Special Needs Trust uses the funds of the disabled beneficiary and is also intended to preserve the beneficiary’s eligibility for government benefits. There are two (2) types of Special Needs Trusts – one is known as a Payback Special Needs Trust or a “d4A Trust” and the other in known as a Pooled Trust or a “d4C Trust”. A Payback Trust may only be set up by a parent, a grandparent, a guardian or a court for the benefit of a disabled beneficiary. A Pooled Trust is set up by a non-profit organization and may be joined by the disabled beneficiary.
When doing estate planning with an elder law attorney, it is best to consider the special needs individual’s personal and family situation to decide whether a Supplemental Needs Trust, a Special Needs Trust or an ABLE account, or some combination, would be best.