ABLE Accounts allow some people with disabilities to have tax-free savings accounts that won’t affect their ability to qualify for government assistance. But an ABLE account can be more than simply a savings vehicle. You can use these accounts in many creative ways, either alone or with other planning tools.
Anyone who has more than $2,000 in countable assets is ineligible for many public benefits programs, including Medicaid and Supplemental Security Income (SSI). But because an ABLE account with a balance below $100,000 is not counted as a resource, the account provides an opportunity to protect benefits eligibility.
Not everyone is eligible to open an ABLE account, and there are restrictions on how these accounts are used. Make sure you understand the program you enroll in, and get advice for your individual situation. With some planning, you can often avoid becoming ineligible because of wages, gifts, or other sources of income. Here are five practical uses for an ABLE account that could have a significant impact on a beneficiary’s quality of life:
1) Protecting UGMA account funds:
Do you know a child with disabilities who has a savings account in his or her own name? Perhaps family members have deposited gifts into a special account for them over the years? Such an account is often known as an “UGMA account,” named after the Uniform Gifts to Minors Act, the law that governs bank accounts owned by minors.
When the child turns eighteen, that bank account becomes a countable resource for purposes of determining benefits eligibility. One practical use of an ABLE account is as a repository for money from an UGMA account so that it will not count as an available resource against your continued benefits eligibility.
2) Shielding income:
Another practical use for an ABLE account is as a receptacle for child support, alimony, or even earned wages. Depositing income into an ABLE account shields it from Social Security’s resource review. You can accumulate more than $2,000 in earnings without disrupting your eligibility for government programs. In addition, an ABLE account is flexible enough that account holders can easily use the deposited income to pay for their expenses.
Note that the Louisiana ABLE account is not as flexible as other states, and only allows one or two distributions per month. If you want to use an ABLE account to make lots of payments, you might want to look into another states’ program.
3) Substituting an ABLE account for a special needs trust:
An ABLE account can play a beneficial role if an individual on disability expects to receive a small settlement, inheritance or gift. In some cases, an ABLE account may even make it unnecessary to go through the time and expense of creating a special needs trust.
Here’s how this might work for an individual receiving, say, a $150,000 settlement. Although no more than $14,000 can be deposited into an ABLE account each year, there are still options. The individual could transfer $14,000 into her ABLE account, and use the remaining $136,000 to purchase a structured annuity that would deposit more money into the ABLE account amount each month. In this way, you can avoid a complex special needs trust.
4) Giving the beneficiary financial control:
Perhaps the most important practical use of an ABLE account is that the individual with disabilities can manage and control their own account. With a special needs trust, a trustee has to to approve each and every expenditure. On the other hand, an ABLE account is much more flexible, and allows the account owner to make their own financial decisions. With an ABLE account, an individual can decide whether or not to save money for such things as a home, a car, or even a wedding.
5) Paying household expenses:
Another beneficial use of an ABLE account is using it to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty. When a third party (like a trust or a parent) pays for housing, the ISM penalty reduces the amount of the individual’s SSI payments. However, the Social Security Administration views money in an ABLE account as the beneficiary’s own money, so normally there is no ISM penalty for using ABLE funds to pay for housing expenses.
When it comes to planning for future needs, it is important to not only consider the advantages of an ABLE account standing alone. You can also use an ABLE account in conjunction with other planning tools, such as a special needs trust. Put together, an ABLE account AND a special needs trust can accomplish what neither can do alone. As one piece of a larger plan, an ABLE account can be part of your strategy to meet your individual needs now and in the future.
To find out how an ABLE account might benefit your family, contact our office or a special needs planner in your area.
Revised and published with permission from the American Society of Special Needs Planners.