It’s 529 Day! Learn about your savings options.

Since 420 Day has become a thing, financial planners are jumping on the bandwagon and talking about May 29 being 529 Day. It’s an opportunity to talk about educational savings accounts, known as 529 accounts. It’s also a chance to look again at the 529’s newest sibling, the 529 ABLE account.

Both educational 529 accounts and ABLE accounts can be useful tools in saving for the future for someone with a disability.

Five Practical Ways to Use an ABLE Account

ABLE AccountsABLE 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.

States with an ABLE program

Deeming Parental Income and Disability for a Child with Special Needs

If you have a minor child with special needs, SSI benefits and Medicaid coverage may be available to your child. It may be worth crunching numbers and reviewing SSA’s charts and formulas to see if your child may qualify. If your child is already receiving SSI benefits, it is important to understand the basics of deeming parental income and disability. Inadvertently breaking the rules could jeopardize those benefits.

Supplemental Security Income (SSI) is a federal program that helps people with disabilities and very low incomes pay for food, clothing and shelter. But even more valuable than the SSI benefit itself is that, in most states, a beneficiary who receives even $1 from the program also qualifies for Medicaid health coverage.

Deeming Parental Income And Disability Benefits

To qualify for SSI benefits, the beneficiary’s income and assets cannot exceed certain limits. The Social Security Administration (SSA) doesn’t look at just the child’s income and assets. SSA also may consider a portion of the parent’s income and assets to be available to the child. This is called “deeming.”

The logic behind the deeming rule is that parents have a legal duty to support their child. Since parents’ income and assets are legally available to support that child, they may be factored in the determination of the child’s eligibility.

Unmarried children seeking SSI benefits are deemed with the income and assets of the parent the child lives with. A stepparent’s income also counts if the stepparent lives in the same home as the child. If the parents are divorced and the child lives with only one parent, the child is not deemed with the income or assets of the parent living in another household.

If a parent receives her own SSI benefits, or if the child does not live with either parent — for example, a child lives with a stepparent or grandparents and no parent lives in the home — there is no parental deeming. The amount of deeming to the child is reduced if the child is living in a household with other children under the age of 21. Once a child reaches the age of 18, even if she is living with a parent, deeming parental income and disability CEASES. After 18, only the child’s own income and assets are counted in determining SSI eligibility.

What does the SSA include in deemed income?

The SSA defines “income” as both “earned” income, like wages, and “unearned” income, like retirement and investment income, unemployment benefits, and gifts. Importantly, Social Security benefits count as unearned income. For example, in 2017 a child with special needs living with one parent earning less than $3,065 a month in earned income would qualify for SSI. If all the parent’s income is unearned, the monthly income limit would be $1,510. “Income” also includes non-cash items such as the value of food and housing one receives from others. This is called “in-kind” income, and SSI treats it the same as unearned cash income.

Assets, or what SSA refers to as “resources,” include things like bank accounts, cash on hand, and investments. However, they don’t count all assets. For example, a parent’s home, automobile, and most retirement accounts are excluded from counting. While you do not have to count a retirement account as a resource, retirement withdrawals ARE counted as income.

Calculating Deemed Income

The calculation of the deeming parental income and disability is complex. The living arrangement of the child makes all the difference and it is not one-size-fits-all. SSA provides an annually updated Deeming Chart to help families make this calculation. However, there are many exceptions that would cause the chart not to apply to a particular family’s situation. One exception is if the family has a mix of earned and unearned income, which many do. A family’s best resource is the procedure, or formula, that SSA uses in the deeming calculation. The documentation that explains this formula can be found on SSA’s website here.

These rules are complicated. We can help you sort through them and determine if your child might qualify for SSI.

Revised and published with permission from the American Society of Special Needs Planners.

Deeming Parental Income and Disability

What is a Trust? How Trusts Work in Louisiana

What is a Trust?

In Louisiana, a trust is defined as a relationship between three people. The relationship is created when Person A gives something to Person B for the benefit of Person C. Person A is known as the Grantor, the person who funds the trust. Person B is the trustee, the person who administers the trust. Person C is the beneficiary, the person for whom the trust exists.

what is a trust

How Trusts Work

For example, imagine that a parent, Amy, gives her house to her son, Bill. Amy and Bill agree that her daughter, Carol, will always get to live there. This understanding is in fact a kind of trust. In an informal trust like this, there is no written document. The trust is the relationship between Amy, Bill, and Carol.

The problem with an informal trust is that it might be difficult to enforce Carol’s right to live in the house. Without a written document to record Amy’s intentions, on paper it just looks like the house belongs to Bill. As a result, if Bill is ever sued or goes bankrupt, his creditors could seize the house to pay his debts. Another risk is that Bill could die and the house would pass to his heirs, potentially leaving Carol out in the cold.

Those risks are why most people formalize the trust relationship with a legal document. The trust document names the three parties in the relationship – the grantor, the trustee, and the beneficiary. Most importantly, the trust document also sets the rules for how the trustee must care for trust assets and when he should distribute them to the beneficiary. Finally, the trust document defines the trustee’s powers and responsibilities, and creates a distinct legal entity that can own property, pay taxes, and pass ownership of assets from one generation to the next.

What is a trust

Next: What are Special Needs Trusts?

Should a Parent Serve as Trustee of a Special Needs Trust?

It is common for a parent to want to be trustee of a special needs trust benefitting her child, especially when the parent is the one creating or funding the trust. There are many reasons why this makes sense. It positions the parent to have complete control over trust distributions. It is also unusual for anyone else to match the loyalty and dedication of a parent. The parent is often the person most familiar with the child’s specific needs that the trust must fulfill. Another advantage is that the parent will usually work without compensation.

Challenges of the Parent Trustee

Despite all this, a parent serving as trustee can also face difficulty navigating the trust laws and public benefits regulations that affect a special needs trust. The laws governing trusts vary from state to state, and public benefits rules can also vary in different parts of the country. The federal regulations are complex, highly technical, and subject to change. Even tax laws can cause headaches.

Alternative 1: Corporate Trustee

One alternative is a corporate trustee, which brings objectivity and knowledge in areas such as investments, accounting, tax and trust laws, and public benefits.  Corporate trustees have specialized training and are required to review the trust documents on a regular basis. They also usually have systems in place to keep current with changes in the law and disability benefits rules.  However, it is not unusual for a parent to feel uncomfortable giving responsibility for their child’s trust over to an impersonal professional trustee.

Alternative 2: Co-Trustees

One solution is for the parent and professional trustee to serve together as co-trustees. The parent knows the needs of the child, while the professional trustee has expertise in financial matters and law. This is especially a good combination for a trust of substantial size.

Alternative 3: Trust Protectors

Perhaps an even better alternative is to consider the use of a trust protector to oversee the corporate trustee. A trust protector is an independent third party whose role is to “look over the shoulder” of the trustee. The trust protector’s job is to ensure that the trust is operating the way the grantor intended. The trust agreement typically details the trust protector’s responsibilities and areas of authority.

It is even possible to use a corporate trustee while naming the parent as trust protector. This arrangement allows the parent to oversee the trust, while the corporate trustee manages technical and legal trust issues.

A parent who wants to be involved in the operation of a special needs trust is commendable. But deciding whom to name as trustee, co-trustee or trust protector should involve a careful consideration. Often the combination of parent and professional trustee forms the best team to oversee a special needs trust.

Revised and published with permission from the American Society of Special Needs Planners.