Improving Quality of Life
Travis turned 29 years-old last week. One of Travis’s friends from high school came to Travis’s birthday party with his dad. We got to visiting about our kids and how they were doing, as parents do. Only our conversations are different than most parents. We talked about helping our kids to live as independently as possible. We talked about what our kids may be able to accomplish, if only they were able to stabilize their mental health. We talked about what medications they were currently prescribed. The change in therapists, which is always difficult. What services our kids were receiving, and if the services were adequate.
We talked about working to ensure our kids were set up for the future, especially after we are gone.
The subject of ABLE accounts came up. We have not set up an ABLE account for Travis. We did set up a special needs trust, with Corey as trustee. This was before ABLE accounts were available. I decided to do some research to refresh my memory about why I haven’t opened an ABLE account for Travis. It’s possible I have just been too overwhelmed to take on more!
Per www.wikipedia.org, “An ABLE account, also known as a 529 ABLE or 529A account, is a state-run savings program for eligible people with disabilities in the United States. Rules governing ABLE accounts are codified in Internal Revenue Code section 529A, which was enacted by the Achieving a Better Life Experience (ABLE) Act in 2014. With limitations, funds in an ABLE account are exempt from the Supplemental Security Income (SSI) and Medicaid asset limit, and earnings are exempt from federal income tax.”
Millions of Americans with disabilities depend on a wide variety of public benefits for income, healthcare, food and housing. In the past, people with disabilities could not save for the future out of fear of losing their benefits. If an individual receiving SSI accumulates more than $2,000 in assets, their SSI is suspended until their asset balance is once again below $2,000. This amount was set in the 80’s and has never been increased. It is ridiculous that $2,000 is still the limit today.
The federal Achieving a Better Life Experience Act authorized (did not require) states to establish tax-advantaged savings programs so individuals can save and invest money without jeopardizing eligibility for public benefits. It was signed into law in December 2014. The ABLE Act was one of the most bipartisan bills in history, 85% of the entire US Congress supported the ABLE Act.
In 2015, Virginia became the first state to approve and pass ABLE legislation. Today, ABLE accounts are available in over forty states. Each state has slightly different rules and procedures for opening and using an ABLE account. Most states accept out of state enrollees.
For the first time in public policy, the ABLE Act recognizes the extra and significant costs of living with a disability. ABLE accounts allow eligible individuals the opportunity to save and fund a variety of qualified disability expenses (QDE).
Contributions to an ABLE account are limited to $16,000 per year in 2022. (More for working individuals.) If the account balance goes over $100,000, SSI will be suspended until the account is once at or again below $100,000. Friends and family can contribute to the ABLE account.
Who is eligible? Per the ABLE National Resource Center website, www.ablenrc.org, “It is important to understand that not all individuals with disabilities will be eligible to open an ABLE account. The ABLE Act limits eligibility to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If you meet this age criterion and are also already receiving benefits under SSI and/or SSDI, you are automatically eligible to establish an ABLE account.
If you are not a recipient of SSI and/or SSDI, but still meet the age of onset disability requirement, you could still be eligible to open an ABLE account if you meet Social Security’s definition and criteria regarding significant functional limitations and receive a letter of certification from a licensed physician (MD or DO). You do not have to be under the age of 26 to be eligible for an ABLE account. You can be over the age of 26, but the disabling condition must have occurred before your 26th birthday.”
Some examples of qualified expenses include, basic living expenses, health and wellness, housing, financial management and administrative services, transportation, education and training, assistive technology, legal fees, and funeral and burial.
An expense is “qualified” if:
You incurred the expense at a time you were considered an “eligible individual”.
The expense relates to your blindness or disability.
The expense helps you maintain or improve your health, independence, or quality of life.
Some of the key features of an ABLE account:
Easy online enrollment.
Not obligated to enroll in state of residence.
Account earnings grow tax-free and are tax-exempt.
Some states have deductions for contributions to ABLE accounts for in-state residents.
A 529 account may be rolled into an ABLE account.
A parent or legal guardian has signature authority on the account and can manage the account. The money spent must be tracked. Distributions are reported to the IRS. The IRS may conduct an audit. Distributions are also reported to the Social Security Administration (SSA). SSA may investigate.
If the money is used for a nonqualified expense the earnings portion of the withdrawal will be treated as income, taxed at the individual’s tax rate, subject to a 10% federal tax penalty and counted against the individual for purpose of determining eligibility of public benefits programs.
There are fees attached to the account.
If the account owner dies with funds in the ABLE account, those funds must be used (in this order) to pay any outstanding QDE bills including funeral expenses, then to provide payback to Medicaid for all Medicaid benefits received from the time the account was opened, and then to be distributed to the account holder’s legal beneficiaries.
This is where I get hung up. Let’s say a grandparent wants to leave an inheritance to each grandchild, so they contribute to an ABLE account. If the account holder dies, the inheritance may be used to payback Medicaid. I’m pretty sure that would not be the grandparent’s intent.
I can see a benefit to having an ABLE account with a limited balance, more of a transactional type of account. An example of when an ABLE account would be nice, if we gave Travis cash to help pay for housing or food, that cash is considered unearned income in the form of “In-kind support and maintenance” and may cause a reduction in SSI payment. In-kind support is also considered income when determining Travis’s portion of HUD rent.
Per www.ablenrc.org, “On April 26, 2019, the U.S. Department of Housing and Urban Development (HUD) released guidance to Public Housing Directors, Managers and Administrators regarding the “Treatment of ABLE accounts in HUD-Assisted Programs. The ABLE National Resource Center (ABLE NRC) is pleased to see that the guidance acts to reinforce the language, spirit and congressional intent of the ABLE Act to ensure that ABLE accounts should “supplement, but not supplant” public benefits being provided to the ABLE account owner, including supports and services provided by HUD programs.
The guidance letter directly states that, “Given that the ABLE Act creates a federally mandated exclusion for ABLE accounts applicable to HUD programs, in determining a family’s income, HUD will exclude amounts in the individual’s ABLE account pursuant to 24 CFR 5.609(c)(17). The entire value of the individual’s ABLE account will be excluded from the household’s assets. This means actual or imputed interest on the ABLE account balance will not be counted as income. Distributions from the ABLE account are also not considered income. All wage income received, regardless of which account the money is paid to, is included as income.”
So instead of giving Travis cash, we could contribute to an ABLE account. Travis would be able to use funds from that account without it being considered additional income.
Several years ago, we set up a special needs trust. When we are gone, Corey, as trustee can make contributions into an ABLE account, and it would not be considered income. At this point she would also be his legal guardian and need to track expenses and save receipts for expenditures.
I have yet to decide whether or not to open this account.
In a special needs trust, one party holds property for the benefit of another. A webinar I watched said to think of a trust as a contract. The trustee has sole and absolute discretion on how to spend the funds. A trust restricts access to funds. Funds used from the trust are not counted as a resource as the beneficiary has no control.
When distributions are made for needs, the money needs to go directly to the need. It should not be given to the beneficiary to pay for the need. Any money paid directly to a beneficiary from a trust reduces SSI benefits dollar for dollar.
Any money paid from the trust to someone to provide the beneficiary with food or shelter reduces the SSI benefit up to one-third. Having an ABLE account would make sense, in this instance, as it wouldn’t be considered income.
Any money paid from the trust directly to someone else to provide items other than food or shelter does NOT reduce SSI benefits. Some examples are medical care not covered by Medicaid, educational expenses, telephone bills, entertainment, veterinarian bills, etc…
Our special needs trust is considered an estate planning trust, third party set up by a parent. There is not a Medicaid payback with this type of trust.
If an individual receives money such as an inheritance from a family member, or some type of settlement, that will go into a first party trust. That money is subject to Medicaid payback of monies used over entire lifetime. Ouch!
Rules are complicated and parents should definitely consult with an attorney. We used an attorney that specialized in special needs trusts.
Both an ABLE account and a special needs trust are vehicles intended to work the same way; to improve the quality of life of individuals with disabilities by allowing savings without disqualifying them from eligibility of benefits.
It is important to consider an individual’s financial situation when making decisions. There is a broad range of circumstances which will determine which option, or whether both options, are most beneficial.
“There’s never a better way of living than just improving our quality of life.” - Adrian Grenier