ABLE Account and a SNT Trust, How to maximize the Benefit!
Individuals with disabilities and their families have many options to set aside funds without jeopardizing eligibility for means-tested government benefits. However, until recently in PA the most common option was to establish a Special Needs Trust. This option works for many, however there are rules limiting the flexibility of the use of Trust funds. With the 2014 enactment of the Stephen J. Beck Achieving a Better Life Experience (ABLE) Act, people with disabilities were/are able to gain increased control over some of their own money and retain a sense of autonomy. While ABLE accounts will not replace other forms of planning that are available to and recommended for people with disabilities, there are definite advantages to adding the ABLE account into an overall plan.
So what are the basics of an ABLE Account?
ABLE accounts are tax-deferred savings accounts that are closely modeled on 529 education savings plans. While ABLE is a federal program, much like 529 education plans, each state is responsible for crafting and administering its own program. Some states only allow residents to enroll, while others welcome out-of-state residents. It’s important to consider not only whether an ABLE account is appropriate, but also which state’s program best suits your situation. In Pennsylvania you can select PA ABLE or look to other states programs that allow non-residents.
Who is eligible?
To be eligible for an ABLE account, a person must be diagnosed, before age 26, with a disability that would entitle him or her “to benefits based on blindness or disability under Title II or XVI of the Social Security Act.” Once eligibility is determined, the individual or a third party (e.g., the disabled individual’s parents, siblings, or friends) can establish and fund an ABLE account.
How much can be placed in an ABLE Account?
The maximum yearly contribution limit is currently $15,000 (however, additional contributions may be permitted for employed account owners). It is a per account limit; so no matter how many people contribute, the maximum per year from all sources cannot exceed $15,000. This limit is set by federal law and is tied to the amount that can be excluded from federal gift taxes (currently $15,000); so it may be increased from time to time as a result of inflation. There is also a maximum value that your account can have. Currently that is $511,758. By law, the maximum value is the same maximum that a PA 529 College Saving Account can have, which may also increase as a result of tuition inflation. In comparison, a SNT has no limit to the amount that can be added to the principal,
What happens when the beneficiary passes?
The PA ABLE account can be used to pay for any outstanding Qualified Disability Expenses, as well as funeral and burial expenses. Typically speaking, for most who are receiving public benefits, the remaining balance of the ABLE account will go to address the DHS Statement of Claim for accumulated Qualified Disability Expenses.
Under proposed Internal Revenue Service (IRS) regulations, if a Beneficiary dies, the ABLE account becomes part of the Beneficiary’s estate. Those regulations are not yet final or in effect. States have asked the IRS to consider other options. Specifically, as allowable under Pennsylvania law, the other option would be to transfer the account to the Beneficiary’s sibling, if any, who is also an Eligible Individual.
When the assets are transferred to the estate, any growth on the contributions will be subject to income tax but not the 10% additional tax applicable to Non-Qualified Withdrawals. For this reason, it usually will be best to pay any outstanding Qualified Disability Expenses, including funeral and burial expenses, from the ABLE account, which will be tax free, before the assets are transferred to the estate.
Should you have both?
Whether there is a First-Party or Third-Party Special Needs Trust, it often makes sense to establish an ABLE account outside the trust for the benefit of the trust beneficiary. The trustee (ACT) cannot establish the ABLE account. However, ACT can be authorized to fund an ABLE account. This arrangement gives you more flexibility and the right to exercise some control over your funds.
Day-to-Day with ACT
Our day-to-day special needs trust services include, but are not limited to:
Supervising all aspects of the trust and at all times acting in the beneficiary’s best interests;
Offering a line of defense against undue influence from existing friends or family, outside caregivers, and new friends who may suddenly appear once a trust is funded;
Abiding by the terms of the trust and reviewing each distribution against a standard of “reasonableness”;
Taking custody of cash, maintaining transactional records for receipts and disbursements, preparing tax letters and tax returns for the trust, issuing account statements and providing accountings as required by the court as well as other outside authorities;
Monitoring and reviewing the performance of the investment manager and making changes that are in the best interests of the beneficiary;
Coordinating the payment of bills and expenses, and taking charge to follow through on implementing many of the services outlined in a care plan for the beneficiary;
Maintaining relationships with other service providers in an effort to contain costs, including public benefit agencies and medical cost containment companies;
Determining if it is necessary to purchase a vehicle or house and identifying the specific needs as well as coordinating the purchase;
Coordinating payroll for caregivers recommended by a case manager, if such services are not provided by a private agency or Medicaid; and
Supporting the implementation of recommendations made by a case manager to enable the beneficiary to receive the highest quality of care.
Get Connected Today!
If you have questions, need guidance or would like to speak to an ACT staff member about a specific issue, please send us an email through our contact form. ACT also is able to provide organizations and groups speakers on a variety of Trust and Trust related topics. Simply contact us and we are happy to make the appropriate arrangements. We look forward to hearing from you!