For disabled people, SSI income is a lifeline, yet it comes with many restrictions of what money can be spent on to continue receiving benefits. ABLE accounts are a great solution for people with disabilities to manage their own money and still qualify for benefits.

The challenge with ABLE accounts remains that it is not an ideal estate planning tool for parents or grandparents due to the provision for pay-back to the State for Medicaid purposes after the disabled person’s death. For this reason, gifting to a special needs trust and then have the Trustee transfer to an ABLE account, as needed, creates the best situation with third party funding.

The good news is that ABLE accounts are turning out to be a game-changer when it comes to paying for the beneficiary’s living expenses. ABLE accounts can only be funded up to $15,000 a year from all sources, although a person with a disability can add her wages of up to $12,760 (in 2020) to an account.

For example, money from an ABLE account can be used to pay for utilities and other housing expenses without triggering SSI’s “in-kind support and maintenance” (or ISM) penalty that would otherwise be incurred if a third party, including a special needs trust, made the same expenditure. When it comes to its ISM rules, the Social Security Administration views money in an ABLE account as the SSI beneficiary’s own money, so there is no penalty when the SSI recipient uses funds from an ABLE account to pay for her housing expenses.

More and more special needs beneficiaries and guardians are availing themselves of these built-in advantages of ABLE accounts. Research indicates that ABLE accounts are generally not being used as the savings vehicles they were intended to be (probably because of the payback penalty), but rather they are serving as checking accounts. The average ABLE account balance was only $5,000, well below the $100,000 limit.

Restaurant meals were the most popular item on which ABLE funds are being spent, closely followed by groceries, shopping, gas, discount store items and phone/cable. For SSI recipients, being able to pay for food and other discretionary items with no ISM reduction represents a significant windfall. At the same time, spending money without having to obtain a trustee’s permission translates into welcome financial independence for a person with a disability.

However, unfettered access to funds may not be for every beneficiary. Once funds are out of the trustee’s discretion, they can be targeted by fraudsters or others who do not have the beneficiary’s best interests in mind. If a beneficiary who has an ABLE account but lacks the ability to manage her own finances, the only alternative once the parents are no longer around to help may be a guardianship or conservatorship, or a Power of Attorney authorizing an agent chosen by the disabled person to manage the account for them.

Read our article Financial Skills for Young Adults on the Spectrum to learn more about financial tools and education for people with disabilities.

Despite just celebrating their sixth birthday, ABLE accounts are still woefully underutilized.  To find out whether an account is right for you or a family member with disabilities – or whether an existing account could be better used — contact our office to schedule a consult.