Those who have loved ones with disabilities and wish to save money tax-free often create special needs trusts (SNTs) to supplement their loved one’s unique needs and quality of life while continuing to qualify for public assistance. With the ABLE Act (Achieving a Better Life Experience) of 2014, disabled individuals now have a second means of building assets while at the same time not jeopardizing federally funded programs such as Medicaid and Supplemental Security Income (SSI) or Social Security Disability Income (SSDI). Differences Between ABLE Accounts and Special Needs TrustsWhich financial strategy is better? The answer is, it depends. There are some significant differences between them regarding saving and spending rules. ABLE accounts and special needs trusts have different annual saving limitations. Depending on your circumstances, you might use both financial products. However, only one ABLE account is permissible for each disabled individual. While an ABLE account is easier to set up and manage, its primary disadvantage is contribution limits. The total annual contribution possible by a participating account funder is $16,000. Each state has an ABLE limit ranging from $235,000 to $500,000. Persons with disabilities who receive SSI are also subject to additional limitations. A special needs trust has no monetary limits; however, it is more complex to set up and manage. Some families set up an ABLE account for everyday expenditures and maintain an SNT for larger purchases. Similarities Between ABLE Accounts and Special Needs TrustsAn ABLE account has some similarities to an SNT as both are tax-advantaged savings vehicles for individuals with disabilities before the age of 26. The beneficiary, family, and friends can all contribute to the account, and neither an ABLE account nor SNT affects public benefits eligibility. For the beneficiary, funds within both financial products grow and distribute tax-free. But, an ABLE account has more purchase options than an SNT. Qualified Disability Expenses (QDEs) include:
In contrast, an SNT design is to pay for “extras” to make life more comfortable. Extras may include:
This narrower range of permitted expenses is why families will often establish both financial vehicles. Accessing Funds, Taxes, and ExpensesMoney in an ABLE account is easy to access. Many programs offer a debit card linked to the account so you can pay for items directly. In an SNT, the trustee needs to make the funds available to the beneficiary. This oversight by a trustee ensures the beneficiary must get permission before using a credit or debit card to purchase items or obtain cash that may not qualify for the SNT rules. A newer option for an SNT is a True Link debit card, a trustee-managed prepaid card. Still, purchases must not disqualify the beneficiary from government benefits programs. The person with disabilities conducts ABLE account ownership and management. Since the money in an ABLE account is tax-free, management is quite simple. However, they must ensure their expenditures qualify as a QDE. The trustee of the SNT is responsible for following the trust guidelines, keeping records of expenses, and producing tax information annually as the trust grantor pays taxes. When the person who owns an ABLE account dies, the money left is likely to be used for state Medicaid agency services reimbursement. A special needs trust is created with other people’s money (parent, grandparent), and as a third-party trust does not have to repay Medicaid after the beneficiary dies. Every family has different circumstances and needs. A disability planning attorney can explain the varied purposes of an ABLE account or SNT and how they can benefit your loved one. It may be that both financial products suit your planning needs to protect a loved one with a disability. We hope you found this article helpful. Please contact our Houston office at 281-214-0173 or the Bay City office at 979-318-5079 today and schedule an appointment to discuss how we can help you with your legal matters. Via https://www.wthompsonlaw.com/special-needs-trusts-and-able-accounts/
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About UsHouston, Texas estate planning attorney The Law Office of Whitney L. Thompson is here to help with estate planning needs including trusts, wills, guardianship, and Medicaid planning. Attorney Thompson works hard to represent her client and ensure that they receive the best outcome possible. Call 281-214-0173 to schedule a consultation. ArchivesNo Archives Categories |