A special needs trust is a key component to an estate plan for clients with a special needs beneficiary. Special needs trusts allow a beneficiary to receive the benefits of their inheritance while maintaining eligibility for “means tested” governmental programs such as Medicaid or Supplemental Security Income (SSI). However, special needs trusts have drawbacks, including the requirement that the trustee have complete discretion over distributions from the trust. As a result, the special needs beneficiary is subject to the trustee’s decision to make or withhold distributions and the beneficiary cannot force a distribution when the trustee says “no.” Trustees of a special needs trust are also generally prohibited from making distributions directly to the special needs beneficiary and from making indirect distributions to pay for the special needs beneficiary’s food, clothing or shelter.
An ABLE account is a way to provide financial independence for a special needs beneficiary while maintaining eligibility for governmental benefits and should be considered by parents with a special needs beneficiary. ABLE accounts are fairly new to Virginia. The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was signed into law by President Obama in December 2014 and Virginia passed legislation in 2015 instructing Virginia529 to create and administer ABLE accounts within the Commonwealth. The basic goal of an ABLE account is to provide financial independence for Virginians with special needs while not interfering with their ability to receive government funded assistance.
Some important things to know about ABLE accounts:
· In order to open an ABLE account, an individual must be disabled (under the eligibility rules set forth by the Social Security Administration) prior to reaching age twenty-six.
· A special needs beneficiary may only have one ABLE account.
· The funds in an ABLE account may only be used for “qualified disability expenses” such as housing, transportation, and job training (among others).
· At the death of the special needs beneficiary, funds in the ABLE account must be used to reimburse Medicaid for the costs spent on the special needs beneficiary’s care during his or her lifetime.
However, some of the major benefits of an ABLE account are:
· A special needs beneficiary (or family and friends) may contribute up to fifteen thousand dollars ($15,000) per year to an ABLE account (matching the Gift Tax Annual Exclusion Amount).
· The ABLE account may hold up to a maximum of five hundred thousand dollars ($500,000) without effecting a special needs beneficiary’s eligibility for Medicaid (which usually requires a person to have less than two thousand-dollars ($2,000) in assets to qualify).
· The ABLE account may hold up to one hundred thousand dollars ($100,000) without effecting a special needs beneficiary’s eligibility for Supplemental Security Income.
· Money contributed to the ABLE account is eligible for certain tax benefits such as tax-free growth (much like an IRA) and a state income tax deduction of two thousand dollars ($2,000).
ABLE accounts are by no means a perfect solution for parents of special needs beneficiaries. However, if you (or a client of yours) wants to provide a special needs beneficiary with financial independence and avoid the complexity of a special needs trust, an ABLE account should be considered as part of your estate plan.
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