Savings for People with Disabilities

The long awaited ABLE (Achieving a Better Life Experience) Act has now become law. Once implemented, the law will allow eligible people with disabilities to accumulate funds in a special savings account called an ABLE Account. Up to $14,000 per year can potentially be added to an ABLE account in the name of the disabled person without jeopardizing important government benefits.

Although the law was initially pursued as a way for families to save for their disabled child’s future while enjoying tax benefits, the ABLE Act that was eventually signed into law will not likely be a runaway hit for special needs planning purposes. The real winners of the ABLE Act will likely be disabled and working adults.

One of the frustrations for people with disabilities who are recipients of government benefits is the strict limit on assets they are able to accumulate and manage themselves. The low $2,000 asset limit for both Medicaid and SSI serves as a disincentive to accumulate any savings as exceeding the allowable limit could mean a loss of benefits. With the passage of the ABLE Act, qualified individuals will have the option of putting these extra funds into a special savings account without losing benefits and still have the ability to maintain control of the assets themselves. The ABLE Act will not only create an incentive for employment, but will give people with disabilities more control over their lives.

The Payback Clause

As for families who are looking for a way to plan for their disabled child’s future, an ABLE account may not be quite as attractive. One of the goals of special needs planning (versus reacting) is to keep assets within the family. With an ABLE account, the State becomes a member of the family and takes a seat at the head of the table as a creditor due to the mandatory “Payback” clause. At the end of the disabled person’s life, whatever is left in the account is applied to “pay back” the state for Medicaid expenses that accrued from the time the account was opened.

Although a mere mentioning of the word “Payback” usually causes clients to fall out of their chairs, a Payback clause would also be a requirement of a Self-Settled Special Needs Trust. Self-Settled SNTs are commonly established when a disabled person already has assets in his or her name, usually through some type of windfall from a court settlement or from a direct inheritance from family members. Unlike an ABLE account, there is no limit as to how much can be added to a Self-Settled SNT.

Even though a Payback clause may be the best option available when a disabled person already has an excessive amount of assets in his or her name, Medicaid Payback can be avoided in situations where the funds come from a third party. Parents or grandparents (or others) who wish to give today or leave assets tomorrow for the benefit of a disabled person can gift to that person’s Third Party Special Needs Trust and avoid Medicaid Payback to the state. The person who establishes the Third Party SNT can simply designate who the future beneficiaries will be once the trust terminates.

Unfortunately, ABLE accounts will not distinguish between first party funding (the disabled person’s funds) vs. third party funding (parents, grandparents, others) and the Payback clause will apply at the end of the person’s life regardless of the source of funding. Thus, unnecessarily exposing family assets to the State as creditor.

There are other considerations that are important for families to be aware of regarding ABLE accounts, including whether the simplicity of an ABLE account is a benefit or a drawback for their particular child’s needs.  Although the convenience and ease of setting up an ABLE account will be a benefit for working individuals who are more independent, a bank account on its own will not provide lifelong protection of all the needs of more vulnerable individuals. Talk to a special needs law attorney in your state to see which options are best for your particular situation.