How ABLE accounts, special needs trusts work together and how are they different

Due to the cost of astronomical care and support – often more than $100,000 per year – most individuals with disabilities will need government assistance such as Supplemental Security Income and Medicaid.

However, they must store their assets carefully so as not to be excluded from these programs. That’s where the special needs of fiduciary and ABLE accounts come in.

Explanation of special needs

There are two types of special needs trusts:

  • Third-party: “This type of trust is funded by [or others’] “After a parent dies, the money is never in the child’s name,” said Charles Italiano, assistant director of Westchester Disabled On the Move, in Yonkers, New York. kid.”
  • First party: This trust is created with the individual’s own assets to protect any income, whether earned or inherited, from exceeding Medicaid income and asset limits. Distributions must be approved by the trustee, and any money left over after the individual dies can be claimed by Medicaid, if that person is the recipient, he said.

Certified financial planner Mike Walther, founder of Oak Wealth Advisors in Northbrook, Illinois. These include groceries, which are covered by the Supplemental Nutritional Assistance Program; medical expenses, covered by Medicaid; and housing costs, covered by SSI.

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Since government programs do not cover all expenditures related to these items, an ABLE account can be used to pay for shortfalls.

What is an ABLE account?

ABLE accountis defined as a “tax-advantaged savings account that can fund disability expenses”, which can be used for a variety of “qualified disability expenses“generally refers to expenditures that assist individuals” in maintaining or improving their health, independence or quality of life. “

These can pay for anything for personal benefit, such as computers, communications equipment, education, training, financial management, support services, assistive technology , food (restaurants, prepared foods), basic housing costs (rent, mortgage payments, basic utilities) and more, according to Michael Beloff, partner and Special needs consultant hired with Belvedere Wealth Partners in Stamford, Connecticut.

Important points about ABLE account

  • Account holders with disabilities must be diagnosed before age 26.
  • The individual always has control, compared to the special need of trust, where the trustee makes decisions.
  • ABLE accounts are inexpensive, easy to set up, and can be funded instantly in small amounts.
  • Individuals must go through the state website to open an ABLE account, and depending on the state, distribution (payment) can be made as a checking account, debit card, or through an online request. next. – DN

Under applicable federal law, a trustee may make distributions from the special needs trust into an ABLE account to pay for an individual’s bills. Similar to first-party trusts, ABLE fund balances can be claimed by Medicaid upon the death of a Medicaid recipient.

“Not all states have ABLE accounts, but people from those states can open an account in states where non-residents are allowed,” says Walther. “And can shop around.”

This is comparison matrix of ABLE accounts in various states, with permission from Oak Wealth Advisors.

A key feature of the ABLE account, as opposed to a regular checking account, is that it allows individuals to accumulate more than $2,000 without jeopardizing the vehicle-checked benefits, Italiano said.

ABLE account holders can keep their funds in cash or they can invest. Beloff said each state has contracted with an investment company and offers a variety of investment options.

“ABLE accounts are great tools for an individual with a disability to manage funds, but they are not a substitute for a special needs trust,” he said.

“This is because you can only contribute $16,000 [in 2022] every year for ABLE, but most parents leave more than that “to inheritance, Beloff added.” Therefore, they need another car [with no contribution limit] to store money. “

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