by Melanie Bradford
The Achieving a Better Life Experience Act of 2014, or “ABLE Act,” became federal law on December 19, 2014. Originally, many thought this law would eliminate the need for special needs trusts and make it very easy for a family to handle a disabled individual’s assets. While this law has many benefits, it does not eliminate the need for a special needs trust and works best if used in conjunction with a special needs trust.
Parents or guardians using special needs trusts know that federal and state law impose certain restrictions and requirements on the use of trust funds. One restriction that is particularly troublesome is the inability to use funds in trust to pay for rent or a house payment without Social Security and Medicaid disqualifying the trust as an asset protection device. Instead, a disabled individual and his or her family are left to determine how to provide appropriate shelter and food on a monthly budget of $735 each month, the maximum SSI benefit.
ABLE accounts change this problem by allowing payments for food and shelter from the accounts. This example, by itself, would make it seem like an ABLE account solves most of the financial problems disabled individuals face; however, there are downsides to ABLE accounts, such as:
Age Limit – ABLE accounts may only be opened by individuals that became blind or disabled before the age of 26. This restriction severely limits the individuals qualified to open an ABLE account.
Yearly Limits to Contributions – There is a limit of $14,000 that may be deposited into an ABLE account each year. This low limit eliminates individuals from protecting most inheritances, legal settlements or judgments, and gifts by placing all of the proceeds into an ABLE account. A special needs trust is necessary to hold any amounts over $14,000.
Lifetime Limits to Contributions – There is a $100,000 limit for the funds that may be held in an ABLE account. While an individual may save money using an ABLE account, he or she will not be able to exceed this limit.
Medicaid Reimbursement at Death – Any funds remaining in an ABLE account at the death of the disabled individual must be used toward reimbursement of Medicaid benefits paid for the benefit of the disabled individual.
The limitations and restrictions above illustrate why it remains critical for special needs trusts to be used in conjunction with ABLE accounts. A special needs trust can be created at any age in Alabama (although a pooled special needs trust must be used for someone 65 or older). There are no yearly or lifetime limits regarding the assets that can be placed in a special needs trust. Additionally, and perhaps, most importantly, if a family member sets up a special needs trust for a disabled individual, any remaining funds at the death of the individual are distributed to the individuals or charities that are listed in the trust document instead of being distributed to the Medicaid agency.
It is important to understand the advantages and limitations of both techniques and to realize that if they are used together, they can provide a better standard of living for individuals with disabilities.
Melanie B. Bradford is an attorney and the executive director for Alabama Family Trust ("AFT"), a non-profit, 501(c)(3) organization that administers pooled special needs trusts for individuals in Alabama and across the United States. AFT is located at 2820 Columbiana Road, Vestavia Hills, AL.