From Our “Ask a Question” Mailbag: “How can I save money for my special needs child without disqualifying him from government benefits? Do I need to create a Special Needs Trust or are there other options?”
How can I save money for my Special Needs Child?
If you or a loved one has a disability, you may qualify for government benefits. Eligibility for specified benefits, such as Supplemental Security Income (SSI) and Medicaid, are based on the applicant’s income and assets, or “means-tested.” If a disabled individual has too much income or assets, that income may disqualify the person from means-tested assistance programs.
What if Needs-Based Government Benefits Are Not Enough?
Unfortunately, government benefits are often not substantial enough to provide adequate living standards. The good news is that there are multiple ways to save money for a disabled, loved one without losing eligibility for public benefits. One method is creating a Special Needs Trust. That is the most comprehensive and flexible choice, but it can be costly to develop and administer. Another option is opening an ABLE account. An ABLE account allows people with qualifying disabilities to invest money tax-free without losing eligibility for means-tested public benefits, as long as that money covers disability-related expenses.
What is an ABLE Account?
Up to $100,000 in an ABLE account is excluded from asset limits for means-tested government benefits! Acceptable uses for the funds include any expenses incurred as a result of living with a disability. Further, improvement of life quality is the intended purpose of the funds. Allowed expenses include basic living costs, education, housing, transportation, occupational training, assistive technology, health care expenses, and financial management. Also, as long as used for qualified disability expenses, income generated by the ABLE account will not be included in the accountholder’s gross income for tax purposes. Account-holders will receive a debit card to make purchases, just like a flexible spending account (FSA) or health savings account (HSA).
Who is Eligible for an ABLE Account?
To be eligible for an ABLE account, an applicant must have a qualifying mental or physical disability that began before age 26. It does not matter when the applicant received the diagnosis or how old the applicant is now. The applicant must also be entitled to (but not necessarily receive) SSI or social security disability income (SSDI). In the alternative, an applicant can self-certify he or she has a qualifying disability that began before age 26. To self-certify, the applicant must have a written diagnosis from a licensed physician. A third party (i.e., a parent or guardian) can apply on behalf of an applicant.
Which Government Agency Oversees ABLE Accounts?
The states offer and administer ABLE accounts, so every state has slightly different rules. In Pennsylvania, contributions to an ABLE account are deductible from Pennsylvania income tax. That is not the case in New Jersey or New York. Pennsylvania and New Jersey ABLE accounts are available for applicants who don’t reside in those states. Each state provides options for investing ABLE account funds. How can I save Money for my Special Needs Child; investigate what options your state provides.
ABLE vs. Special Needs Trusts.
Creating an ABLE account for a disabled family member is a straightforward and cost-effective means of providing financial support for a disabled loved one above and beyond government benefits. However, there are times where a Special Needs Trust is a better planning tool. For instance, ABLE account applicants are ineligible if his or her disability occurred after age 26. Also, there is a $15,000 annual limit on contributions to an ABLE account. Contributions can only be in cash, not other property. A Special Needs Trust offers much greater flexibility. We’re happy to discuss the pros and cons of ABLE accounts versus Special Needs Trust with you at any time! How can I save Money for my Special Needs Child; weigh the pros and cons of all available options.
In Conclusion: How can I save money for my special needs child.
I hope you found helpful this short article about How can I save money for my special needs child and the introduction to ABLE accounts useful. Also, I have included some links for more detailed information. Contact us. Let our Estate Planning Lawyers walk you through this confusing process. Furthermore, feel free to contact our office for a free consultation.
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Attorney Andrew Barron wrote this article.